Developing Australia's Regions: Theory and Practice

D E V E L O P I N G A U S T R A L I A’ S R E G I O N S : THEORY AND PRACTICE

DEVELOPING AUSTRALIA’S REGIONS THEORY AND PRACTICE

Andrew Beer, Alaric Maude and Bill Pritchard

UNSW PRESS

A UNSW Press book Published by University of New South Wales Press Ltd University of New South Wales UNSW Sydney NSW 2052 AUSTRALIA www.unswpress.com.au © A Beer, A Maude and W Pritchard 2003 First published 2003 This book is copyright. Apart from any fair dealing for the purpose of private study, research, criticism or review, as permitted under the Copyright Act, no part may be reproduced by any process without written permission. Inquiries should be addressed to the publisher. National Library of Australia Cataloguing-in-Publication entry: Beer, Andrew. Developing Australia's regions: theory and practice ISBN 0 86840 548 5. 1. Regional planning - Australia. 2. Regional economics Australia. 3. Regional disparities - Australia. 4. Australia - Economic conditions - Regional disparities. I.Maude, Alaric. II. Pritchard, Bill (William Noel). III. Title. 338.994 Cover Max Watters, Houses Along the Wybong Road, 1987 Printer BPA

CONTENTS

Contributors Preface Acknowledgements Acronyms and abbreviations

ix xi xiv xv

CHAPTER 1 An Australia of regions Uneven growth patterns Policy options The goals of this book

1 2 9 12

CHAPTER 2 Defining local and regional development Working for growth Bidding for jobs Lessons from other countries The place of society within economic development Conclusion

14 14 21 29 32 35

CHAPTER 3 What is a region and why does it matter? The significance of the region in regional development Types of regions Defining and delimiting regions Conclusion

38 39 41 51 55

CHAPTER 4 Australia’s diverging regions: Causes, outcomes and policy challenges What scale of region? Increasing polarisation, increasing differentiation

57 58 67

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

The roles of capital city and non-metropolitan regions across Australia Challenges for policy

73 81

CHAPTER 5 Local economic development in resource-based 84 economies The changing role of primary industry in the national 85 economy Primary industries and Australia’s regions 88 Measuring the economic flows of primary industries: 91 Input–Output analysis How do primary industries interact with regional economies? 94 Regional purchasing by farm businesses 96 Changing regional interactions: Mining 99 Moving forward: What can regions do? 103 CHAPTER 6 Sunrise industries: Engines of regional growth? 107 The ‘old’ manufacturing industries 108 Sunrise industries 114 Tourism 115 Producer services 122 Call centres and back offices 126 Advanced manufacturing 128 Regional business strategies 131 Business incubators 132 Business retention and expansion programs 134 Clusters 136 Conclusion 142 CHAPTER 7 The practice of local and regional economic development in Australia The role of economic development agencies The practice of local economic development in Australia ‘Chasing smokestacks’ Conclusion

144 145 159 169

CHAPTER 8 Indigenous people and Australia’s regions Visible and invisible: The regional policy challenge The Aboriginal economy Future issues and directions

171 171 182 188

143

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VII

CHAPTER 9 Infrastructure and services Economy, government and society Infrastructure The banks and financial services Telecommunications Housing as a determinant of regional growth Conclusion

192 193 198 202 204 208 216

CHAPTER 10 Green regions Sustainable development The environmental sustainability of Australian regional economies Will protecting the environment damage the economy? What can be done at the regional level? Who should be responsible for sustainable regional development? What are the barriers to achieving environmental sustainability at the regional level? Developing and implementing a regional sustainable development strategy Conclusion

218 218 221

CHAPTER 11 A local and regional development policy for Australia Scenario 1 Australia’s regions in an unfettered market Scenario 2 Systematic planning for local and regional development Scenario 3 An entrepreneurial model of economic development Governments, regions and communities Conclusion

246

Notes Index

225 232 234 237 243 245

248 253 257 260 262 265 303

CONTRIBUTORS

Andrew Beer is an Associate Professor in the School of Geography, Population and Environmental Management at Flinders University. Previous publications of note include Home Truths (with Blair Badcock) and Beyond the Capitals: Urban Growth in Regional Australia (with Alaric Maude and Andrew Bolam). His interests include the behaviour of regional development bodies, housing markets, local government and Federal and State policies. Andrew has spent two major periods overseas, the first as a Visiting Research Fellow in the Department of Geographical Sciences at Plymouth University in 1997, and the second in 2001 as a Leverhulme Fellow at the Magee Campus of the University of Ulster. Alaric Maude is an Associate Professor in the School of Geography, Population and Environmental Management at Flinders University, where he has been teaching topics on regional and urban development for twelve years. He has undertaken research into out-migration from lagging regional economies in Indonesia and Malaysia, the role of small towns in regional development in Malaysia, regional towns and cities in Australia, and regional development agencies in Australia. In 1998 Alaric was the Conference Secretary for the Annual Conference of the Australian and New Zealand Regional Science Association at Tanunda in South Australia, the first to be held in association with a regional development agency. Bill Pritchard is Senior Lecturer in Economic Geography at the University of Sydney. He was co-editor of Land of Discontent (UNSW Press, 2000) and has published widely in the areas of agricultural and food industry restructuring, rural economies and

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

Australia’s North. Bill received a Coral Sea Fellowship to undertake research on agri-food industries in North America, and more recently has travelled the globe undertaking research on the tomato industry. In previous lives Bill has been employed by the Evatt Foundation, worked for a Federal Member of Parliament and been employed in the NSW public service.

P R E FA C E

This book is an attempt by three university-based researchers and teachers to engage with a broad audience on issues relating to the development of Australia’s regions. This audience includes local government councillors, State government officials, economic development practitioners, academics, Indigenous communities, environmental groups, Federal government policy makers and undergraduate and postgraduate students. We believe this is an important task because the future of economic development in Australia, and the future of our communities, is very much tied to the nature, pace and direction of growth within its regions. To a very large degree debates about regional issues in Australia have focused upon the nation’s non-metropolitan parts. ‘Regional Australia’ has become a synonym for non-metropolitan Australia and ‘RaRA’ (Rural and Regional Australia) has dominated policy development and the attention of senior politicians. The prominence of non-metropolitan regions has been an inevitable consequence of the political landscape — and voting behaviour — of Australia over the last decade. Unfortunately, this focus has resulted in a skewed perception of Australia’s regions and regional issues. It has contributed to the view that regions only exist outside the capitals; that all of Australia’s non-metropolitan regions are in decline — usually terminal; that Australia’s non-metropolitan regions depend entirely upon agriculture and its supporting industries; that Indigenous communities are an impediment to regional development; that environmental decline is an inevitable consequence of economic development; that responsibility to address environmental issues rests with State or Federal governments, not local communities; and that greater levels

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

of public sector funding could restore ‘regional Australia’ to the Golden Years of the 1950s, 1960s or 1970s. Developing Australia’s Regions: Theory and Practice seeks to challenge these misconceptions. It sets out to show how the development of regions within capital cities is as important for the nation as the development of non-metropolitan regions. It attempts to present a balanced view of how Indigenous communities can, and do, contribute to regional economies. It examines our slow progress towards regional environmental sustainability and the benefits for regional economies of better environmental protection. It also highlights how successful Australia has been in certain industries and regions. Throughout Developing Australia’s Regions: Theory and Practice we examine the practical applications of theoretical perspectives on regional economic development. Theory isn’t seen as an endpoint; rather we draw upon it in order to examine current practice in regional economic development and to suggest new approaches. Individuals, organisations and communities can use the ideas presented here to map out strategies and actions that could improve the prospects of their region. This might include taking the first steps to set up a business cluster or reconsidering the potential role of Indigenous Australians within the regional economy and developing new models of collaboration between economic development agencies and Aboriginal or Torres Strait Islander communities. It might include a re-evaluation of the economic development strategies employed by a local government; conducting an environmental audit at the regional scale; rethinking a regional tourism strategy, or the development of an aggressive regional marketing strategy. We hope to contribute to the bank of ideas individuals and communities use when discussing regional issues and planning for their future. We draw on the experience of regions in Australia, as well as overseas, for strategies and policies that seem appropriate for Australia. Each of Australia’s regions is unique, but not so unique that they cannot learn from other places. Developing Australia’s Regions: Theory and Practice is primarily focused on economic development. However, ‘development’ is one of those terms that can be interpreted in several different ways, all of which are valid. Some people emphasise community development and focus on strengthening social interactions and the capacity of groups to identify and deal with challenges. Others focus on human development, the strategies and actions used to enhance the capacities of

PREFACE

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XIII

individuals. We have chosen to focus on economic development because we recognise that in a market-based society such as Australia the wellbeing of a region, and its capacity to attract infrastructure, services and investment, will depend upon the performance of its economy. Yet economic growth is not the only dimension to regional wellbeing: the quality of the environment, the strength of a region’s communities, the levels of tolerance and goodwill amongst residents, and the richness and diversity of social and cultural life are equally, if not more, important than economic performance. The strength of the local economy, however, has a substantial impact on many of these other dimensions of life. Actions that strengthen the regional economy help meet other aspirations. In turn, these qualities have a growing influence on economic opportunity in an increasingly knowledge-based economy. Finally, we hope that Developing Australia’s Regions: Theory and Practice will help inform the development of State, Territory, Federal and local government policy into the future. A greater appreciation of the range of policy instruments available to governments alongside greater awareness of the impacts of current policies will, in the longterm, contribute to a more productive policy environment. Australia’s regions, and those responsible for their development, have made considerable progress over the last two decades, but successful regional development is a process of constant learning. This book is a contribution to that process.

ACKNOWLEDGEMENTS

Many thanks to those who helped us complete this work. In particular we would like to thank John Elliot of the UNSW Press for his very considerable patience with this much-delayed work. We also express our gratitude to three staff members of the School of Geography, Population and Environmental Management at Flinders University. Once again, Mrs Cecile Cutler provided invaluable assistance through proofreading the manuscript. Mrs Louise O’Loughlin was her typical professional self in her assistance with the formatting of the final manuscript while Mr Steve Fildes was responsible for the cartography. Along the way various people commented upon parts of the manuscript. Special thanks to Professor Chris Paris of the University of Ulster for his usual incisive comments. Professor Graham Haughton of the Geography Department, University of Hull also provided comments, especially on Chapter 7. Thanks also to Dr Terry Clower of the University of North Texas; he provided useful and much-needed advice on local economic development issues in the USA. Each of us as individuals has been assisted with this project. Andrew Beer would like to express his sincere thanks to the Leverhulme Trust and the staff at the Magee Campus of the University of Ulster. His chapters were written while a Leverhulme Fellow in Derry. Bill Pritchard would like to thank his colleagues at the Division of Geography, University of Sydney, for their ongoing support. The preparation of some background material in Chapter 5 was assisted by an Australian Research Council Discovery Grant, ‘The spatial construction of food commodity chains in the Asia Pacific’.

A C R O N Y M S A N D A B B R E V I AT I O N S

ACC AFL ALGA ATM ATSIC BEC Centrelink

Area Consultative Committee Australian Football League Australian Local Government Association Automatic Teller Machine Aboriginal and Torres Strait Islander Commission Business Enterprise Centre The Federal government agency with responsibility for social security and other forms of income support. CBD Central Business District CCT Compulsory Competitive Tendering CLP Country Liberal Party E-commerce Retail trade and other business based on the Internet and allied technologies EDU Economic Development Unit EFTPOS Electronic Funds Transfer at Point of Sale EIS Environmental Impact Statement GDP Gross Domestic Product GP General Practitioner GRP Gross Regional Product GSP Gross State Product ILC Indigenous Land Corporation IO Input–Output ISP Internet Service Provider LGA Local Government Area Mabo The term used to refer to the decision by the High Court of Australia that colonisation by the British did not extinguish the common law

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

MSP NGO NHT NOIE NTN NTT OECD RDB RDC RDP SAHT SHA SLA TAFE SSD USO Wik

rights of Indigenous Australians with respect to Crown land. Main Street Program Non-Government Organisation National Heritage Trust National Office of the Information Economy Networking the Nation Native Title Tribunal Organisation for Economic Co-operation and Development Regional Development Board Regional Development Commission Regional Development Program South Australian Housing Trust State Housing Authority Statistical Local Area Technical and Further Education Statistical Subdivisions Universal Service Obligation (may also be referred to as a Community Service Obligation (CSO)) The term used to refer to the High Court of Australia’s decision in 1996 that the leases under which pastoral operations had been granted assumed ongoing residual rights for Indigenous people.

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AN AUSTRALIA OF REGIONS

Australia has become a land where regions matter. For much of the 20th century Australia’s regions exerted a limited impact on how individual Australians and their communities lived. The expansion of manufacturing industry, in combination with government intervention in the economy — through the provision of services, tariffs, and government spending decisions — resulted in a relatively even social and economic landscape.1 This was particularly true for the years of the ‘long boom’, that period from the end of World War II to the mid-1970s when Australia experienced sustained growth and low rates of official unemployment. For much of this period — and in earlier times — the nature of the economy and people’s quality of life was broadly similar across Australia’s capital cities. The capitals performed comparable functions and grew in response to nationally evident processes. Even in the countryside few areas were left behind as services provided by State or Federal governments supported struggling communities, and in some instances public sector price supports, agrarian socialism, ensured the survival of whole industries. Regions, of course, still existed in a physical sense. They were areas with a common landscape, industry or cultural tradition but they were a curiosity of geography, rather than a potent force shaping economic opportunities and wellbeing. Australia has been engaged in a program of radical economic, social and political reform over the last two decades and these changes have had far-reaching implications for the regions. Since the early 1980s Australian governments have chosen to open the economy to global markets and global competition. In the late 1960s Australia had a highly protected manufacturing sector. New Zealand

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

was the only country in the OECD with greater levels of protection for their manufacturers.2 But by the start of the 21st century effective rates of protection on manufactures averaged 5 per cent and applied to all but a handful of industries. The cold winds of competition forced the rationalisation of many industries and the extinction of some, often with acute regional impacts. These impacts were felt both in metropolitan regions and in the countryside. Many would argue, of course, that Australian governments had few, if any options. The ongoing processes of ‘economic globalisation’ have witnessed the ever more rapid expansion of world financial markets, the rise of new competitors for Australia’s traditional export markets, the emergence of increasingly sophisticated strategies amongst other developed economies designed to foster economic growth, and continuing European and American incursions into Australia’s agricultural markets. To ignore, or try to deny, these international developments would risk the emergence of a national economy that is uncompetitive globally. The lessening of tariff and other trade barriers has been one area of substantial government and economic change with significant knock-on effects for regions. Other changes have been as important. The floating of the Australian dollar affected the competitiveness of Australian exports, helping particularly those regions that produce for world markets. At the same time, deregulation of financial markets provided a fillip to the financial services industry, boosting the economic performance of regions such as Sydney. The privatisation of government services such as telecommunications and governmentowned banks has radically restructured the nature of service provision across huge swathes of Australia. In the past, governments were committed to providing rural Australians with the same quality of service found in Sydney, Melbourne or Perth but the new private models of service provision are based on notions of tightly defined ‘Community Service Obligations’ and implicitly accept lower standards outside the capitals.

U N E V E N G R O W T H PAT T E R N S The shift in political ethos from a position which accepted that governments had a role in directing the economy and redressing some of its failures, to one focused on markets alone, has affected every area of social and economic life. It has brought benefits for the Australian people through a more productive and efficient economy but there

AN AUSTRALIA OF REGIONS

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have been costs as well, particularly in the emergence of a more unequal society. Researchers have documented how regional income disparities have grown. One study in the mid-1990s found greater levels of differentiation between regions, with the best performing regions the inner north, central and southern parts of Sydney, the inner and outer north-east of Melbourne, outer western Brisbane, southern Tasmania and the Snowy region.3 Those that fared poorly were concentrated in the Top End and in rural and remote regions. These conclusions have been supported by the economists Rachel Lloyd, Ann Harding and Otto Hellwig of the National Centre for Social and Economic Modelling. They concluded that: There is a large and growing gap between the incomes of those Australians living in the capital cities and those living in the rest of Australia. The incomes of metropolitan residents increased at about double the rate of those living in major urban centres and regional and rural towns in the five years to 1996.4 Non-metropolitan regions are not always the losers in the shifting pattern of income differentials, but they are vulnerable. There is ample evidence that through the 1990s Sydney and Melbourne captured the lion’s share of capital investment in Australia, which in turn led to higher productivity, more jobs and higher wages.5 Importantly, change within the Australian economy has resulted in greater differences between regions in their capacity to grow, as well as in their incomes. This is a fundamental theme in the State of the Regions reports produced by the National Institute for Economic and Industrial Research (NIEIR). They have, for example, identified central and northern Sydney as ‘Global Sydney’, a highly productive region locked into, and trading with, global markets. It is a region packed full of well paid ‘symbolic analysts’6 and with an almost unlimited growth capacity. In their view ‘Global Sydney’ drives the entire Sydney economy, with the rest of the city providing services and goods to support this engine for growth.7 By contrast, other regions lack any evident economic capacity. Some parts of Australia have experienced population growth without the investment in productive activities needed to establish a prosperous future. Many cities and towns have therefore become vulnerable communities — with high rates of unemployment, low incomes and high levels of dependency on pensions, unemployment benefits and other forms of

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

government-provided income support.8 Other communities and regions have come to the same parlous position, but arrived there via the decline of their established industries, especially manufacturing. The growing gap between booming metropolitan regions and other parts of Australia cannot be denied but there is no simple division between well-performing regions in capital cities and struggling regions outside the capitals. Change within the economy has generated a complex pattern of regional winners and losers. Who would have predicted in the early 1980s that the purchase of the Cairns airport by a semi-autonomous State government body would see that city become a major international tourism destination? Who would have forecast in the early 1990s that by 2001 some parts of non-metropolitan South Australia would be struggling to deal with the problems of too much economic growth, while others face an apparently inevitable loss of population? In the early 1980s who would have foreseen that a collapse in the price of wool would threaten the future of inland regions such as the New England Tablelands or the Far West of NSW? Similarly, who would have forecast that Hobart’s shipbuilding industry would be reshaped and emerge as significant within international markets? The growth prospects and incomes of regions are a reflection of the industries they contain. But we can take this point further; it is not just the industry that matters, increasingly it is the mix within those industries and the willingness of individual enterprises to embrace change. Research on Australia’s regional cities has shown that some cities with economies based on agriculture, horticulture and forestry grew between 1991 and 1996 while others had sluggish or declining economies.9 Growth was concentrated in those places where the commodities produced were in demand on world markets — wine grapes, horticulture, forestry. By contrast cities that relied upon broad acre production of grains or wool suffered. Regions able to identify and secure niche markets have thrived while those reliant on mass production at the lowest possible cost have been confronted by more difficult times.10 Some regions appear able to find solutions to their problems, while others cannot. And it is not a simple reflection of differing opportunities because of differing environments. Some regions are able to generate or attract innovation and change for the better, while others lack that capacity. Change within the economy and change within political processes has meant that, for most Australians, where you live — your region —

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has become a much more important determinant of quality of life than it was thirty, twenty or even ten years ago. In the world of work it now shapes the number and types of jobs that are available, the salaries paid within an industry and the career structures available to employees. The weakening of the labour awards system and the shift to a system of enterprise bargaining has contributed to a widening differential in wages between metropolitan and non-metropolitan Australia. Services also reflect regional differences: the quantity and quality of education you are likely to receive, your access to information technology and telecommunications, the availability of conventional services, and your community’s health status will all be affected by the facilities available in your region. There are pronounced regional differences even within the virtual world of the Internet. Limited bandwidth and higher user charges can make the World Wide Web either too expensive or too frustrating for those living outside the capitals. As another example, housing costs vary by region, as do the type of services provided by State and local governments. Health is one area where regional differences have become more evident over the last two or three decades. There have always been substantial differences in health outcomes – mortality and morbidity rates, access to General Practitioner services et cetera — but the increasing cost of providing health services and attempts by both State and Federal governments to shift health expenditures from one to the other, have exacerbated the problem. Many small country towns struggle to attract and retain a local doctor, but even the poorer regions within metropolitan areas have fewer doctors. The closure of public facilities has often meant that access to specialist facilities — such as neo-natal support — is extremely limited in less well off regions. General Practitioner health services starkly illustrate the differences between regions in Australia. In the early 1990s there was one General Practitioner (GP) for every 1173 residents in South Australia. But this figure masked substantial area-by-area differences. There was one GP for every 350 or so residents in Adelaide’s wellheeled eastern suburbs, and an average of one GP per 873 residents across the metropolitan area.11 Non-metropolitan South Australia was less well served: there were 1600 residents per GP in Whyalla, 1300 residents per GP in Port Augusta, 2000 residents per GP in the Flinders Ranges and 2200 residents per GP in the remote mining town of Coober Pedy. In aggregate terms the Eyre Peninsula had

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

reasonable access to GPs, with a ratio of 1:1200. However, there were just 10 practitioners to cover the entire area of the Eyre Peninsula outside Port Lincoln (72 000 square kilometres). The situation appears to have worsened through the 1990s with some communities — of which the small farming settlement of Kimba is a prominent example — struggling to retain a GP. Poor access to a General Practitioner is more than just inconvenient: it contributes to poorer health within the population, the movement of people to other regions, lower vaccination rates amongst children, lower quality of life and the leakage of expenditure from the region.12 It is worth remembering also that the ‘technological fix’ of remotely accessing health services through video link-ups or the Internet can be a mirage. The residents of Far North South Australia reported problems in securing Medicare payments for consultations at which the doctor does not attend in person.13 The physical presence of a GP is therefore significant both for the quality of the service and its affordability. There is no more readily evident proof of the importance of regions in contemporary Australia than the emergence of Pauline Hanson’s One Nation Party. Pauline Hanson first came to prominence in 1996 when she took the Federal seat of Oxley — a former Labor Party safe seat previously held by one-time party leader Bill Hayden – and this initial success was followed by victories in the Queensland and New South Wales elections. Pauline Hanson and the One Nation Party were successful — admittedly to a limited degree — because they offered populist politics to a disenfranchised and disillusioned electorate wary of the radical free-market policies of the Liberal Party on the one hand, and unforgiving of the social and economic reforms thrust upon them by thirteen years of Federal Labor on the other. Voters in ‘stressed out’ communities14 and regions turned to the simple solutions — reduced immigration, reduced support for Indigenous Australians, reductions in government-provided benefits — offered by this new political force. Critically, while the National Party feared that it would lose its traditional voter base in the countryside, support for One Nation was always greatest in the regional cities and outer urban areas.15 It attracted those who previously voted Labor, as well as conservative voters. They came from the communities that had felt the sharp end of social and economic change. That is, One Nation attracted popular support in regions that had experienced the loss of hospitals or schools, faced the

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burden of high rates of unemployment, seen job security disappear and seen working conditions deteriorate as local enterprises competed with producers using cheaper overseas labour. The fact that substantial change has occurred within the Australian economy and its set of regions cannot be denied. What is open to question, however, is what it means for Australia’s future, and how governments should respond. Should we consider current trends toward greater inequality to be an aberration? Should we assume that the continuation of current policies will — in the long run — result in growth and prosperity for all? Should we accept greater regional inequality because in aggregate Australians may become more affluent? Alternatively, are we looking at the beginning of a long-term trend with a further concentration of wealth, opportunity and economic power in a few select locations, while other regions and other places in Australia settle for second best? Is substantial government intervention the answer, perhaps through the reintroduction of tariffs? Are there locality-specific policies we should embrace? Other nations and other parts of the world have far more substantial regional development policies than are ever contemplated in Australia. It has, for example, been estimated that regional development assistance from the European Union’s Structural Adjustment Fund raised Ireland’s Gross National Product (GNP) by between three and four percentage points through the late 1990s.16 Does Australia need to engage in regional development programs of similar magnitude? Figure 1.1 Public sector spending as a percentage of GDP, Australia, all OECD countries, OECD Europe and OECD America

SOURCE

OECD 2001.

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

The prospect of more substantial regional development policies in Australia appears slim. Australia has miserly governments when compared with other developed economies. In 1998 there were 29 nations in the OECD, and Australia was ranked 24th with respect to tax revenues as a percentage of GDP.17 Only the United States, Turkey, Japan, Korea and Mexico had smaller public sectors relative to the size of their economies. Indeed, Australian tax revenues have fallen further behind the OECD average over the last thirty years (Figure 1.1). It therefore appears unlikely that Australia will ever introduce local or regional development programs of the scale found in Europe. There is another, equally important, conclusion: local and regional development initiatives in Australia need to be effective and efficient. Resources for economic development are limited and it is therefore crucial that only the most effective techniques and tools are employed. Too often in the past resources have been misdirected or wastefully employed, with governments placing a greater priority on political, rather than economic, objectives. The low level of public sector funding for local and regional economic development must inevitably raise questions about how to secure private sector interest and funding for economic development initiatives. Questions of policy and the future of Australia’s regions lie at the heart of this book. There are three key themes in the chapters that follow. The first of these themes is that Australia’s regions now look upon a horizon of economic opportunities that is radically different from the situation ten or twenty years previously. This has a number of dimensions, including the recognition that there are new industries that offer prospects for growth. Ecotourism, for example, may offer some more remote regions the chance of achieving sustainable growth by broadening their industry base. The development of both onshore and offshore aquaculture may boost employment, bring a value-adding industry to the region, and boost investment in Research and Development (R&D). The example of aquaculture brings forward a related point: the importance of ‘smart’ industries and the need for regions to act to ensure their own economic wellbeing. The critical role of intellectual capital in ensuring the prosperity of regions and their businesses is highlighted by international success stories such as California’s Silicon Valley.18 But while there have been attempts to replicate this success in Australia, there have been failures as well as triumphs. The Australian Technology Precinct in Sydney appears to be thriving19 while the Multi Function Polis that was intended for Adelaide was a spectacular failure.

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POLICY OPTIONS How then, can economic development be encouraged in the 21st century? What techniques and approaches work, and what are their implications for regions? Will the models developed in Europe or the United States work in this country, or are there factors unique to Australia that militate against the successful application of overseas models? The latter is an important consideration, as Australia remains a very small part of an ever-expanding international economy. Australia also occupies a remote and unimportant corner of the globe. Historically our economic strengths have been with extractive industries — mining, pastoralism, broadacre farming — and they may not furnish Australia with an industrial or intellectual legacy appropriate for economic expansion through the 21st century. Laissez-faire attitudes to the role of government within society and the economy may also be inappropriate because while the Americans have always embraced the market, government defence expenditures bankrolled the fundamental research that made possible its high-technology success stories such as Silicon Valley and Route 128.20 The need for governments to adopt new and different roles is the second major theme within this text. Previously, regional equality was maintained by a host of government institutions and practices. The Commonwealth Grants Commission, for example, ensured equity of access to services between the States through the application of horizontal equalisation principles. This has meant that the smaller States — such as Tasmania and South Australia — received more Commonwealth Government funding than NSW or Victoria because it was accepted that their smaller populations made it more expensive to provide adequate services to all. The public sector itself was a major influence on regional economies. Beyond the capitals State and local governments have been the largest single employers and important guarantors of quality of life. However, the rationalisation of government activities from the 1980s onwards, and the privatisation of government businesses that gathered pace in the early 1990s with the release of the Hilmer Report,21 resulted in the loss of this levelling influence. The introduction of national competition policies adversely affected weaker regions, especially non-metropolitan regions.22 The Kennett Government’s insistence on the adoption of Compulsory Competitive Tendering for all State and local government services in Victoria, for example, resulted in the concentration of municipal services and employment in the larger regional centres and the loss of jobs from smaller towns.23

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

Two of Australia’s most respected urban researchers — Frank Stilwell and Pat Troy — have argued that Australia has a legacy of capable public sector institutions that could ensure the effective and efficient management of Australia’s cities and regions into the future.24 But governments and politicians have not been inclined to leave well enough alone. On the one hand, the new emphasis on market solutions has influenced the operations and functioning of existing organisations. The Commonwealth Grants Commission, for example, has stepped away from the principal of horizontal equalisation in local government funding,25 thereby explicitly accepting greater regional differentials in service provision. However, on the other hand, governments have sought new models for encouraging the development of regions, especially non-metropolitan regions. Centralised approaches to the planning and management of State economies have been abandoned. From the end of World War II until the mid-1970s most State governments across Australia established planning strategies and decentralisation policies that attempted to secure balanced state development.26 They have been replaced by opportunistic strategies designed to secure economic growth for the state, apparently at any cost, and without regard to regional impacts or distribution.27 Outside the capitals economic development initiatives are now organised at the local or regional level, with most States and Territories establishing regional economic development boards or commissions through the 1990s.28 While precise arrangements vary between States, there are common elements between them as a significant percentage of these bodies have boards of management drawn from local governments within the region, as well as local entrepreneurs. They attempt to mobilise community resources to find local solutions to local problems. There is a strong emphasis too on encouraging both business start-ups and the further expansion of existing enterprises.29 The recognition that economic, social and policy change has given rise to new types of regional outcomes is the third theme within this book. We have already touched upon the growing income differentials between regions and the growing importance of regionalism. But the differences between current growth processes and those that operated 20 or 30 years ago extend further. Pat Mullins, the Queensland-based sociologist, has written at some length about tourism-based urbanisation in Australia. While this phenomenon is not unique to this country, a substantial percentage of

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Australia’s non-metropolitan population lives in regions such as the Gold Coast, the Sunshine Coast or the Central Coast of NSW that rely upon the tourism and retirement industries. The continuing growth of these large tourism-based regions represents the geographical expression of new economic processes, including the rise of the service economy, the strength of international tourism to Australia and greater affluence for some older Australians. The decline of many inland country towns represents the other end of this spectrum and brings into focus the unsentimental nature of market processes and market-led policies30. The fact that Australia’s regions now exist within a global — rather than national — network of regions, is another example of how regions have been transformed over the last 20 years. Economic globalisation has meant that at the same time regions have become more significant as a determinant of quality of life within Australia, key aspects of their economic performance — their attractiveness for investment, their rate of growth, wage rates and infrastructure et cetera — have been referenced against international benchmarks. Increasingly, Australia’s regions are part of a worldwide corps of regions, and competition for growth and investment has an international, as well as a national, dimension. Sydney will compete with Singapore, not Melbourne, for the Asia-Pacific headquarters of an information technology firm. Burnie in Tasmania will lose the contest for a titanium dioxide plant to a city in Malaysia, rather than to Portland, Victoria. The products of Australia’s agricultural regions compete head-to-head with commodities from European, African or American producers. These closer linkages between individual regions and the global marketplace influence their relationship with other Australian regions. In the past capital city ports dominated exports from their states but that stranglehold has weakened. For example, the growth of Australian exports within the global wine industry has fuelled the expansion of national production systems within the largest wine makers. Increasingly product from NSW, Victoria or Western Australia is taken to South Australia for bottling and export, rather than being packaged and exported locally. Sheep meat processed and prepared for export in Dubbo leaves the country through the Port of Newcastle rather than Sydney. A West Australian public relations firm has 80 per cent of its business in Indonesia but it is based in Bunbury, not Perth. Modern telecommunications means that the entire operation is independent of the State capital,

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except for flights to and from Jakarta. All these examples show how production for world markets challenges previously established economic relationships within Australia, generates new regional linkages and opens new possibilities for both growth and decline. To an ever-growing degree competition between regions on the global stage is seen to have a number of dimensions, some of which extend beyond simple price competition. There is a large and growing body of international research that shows regions in themselves can be a dynamic force in encouraging further economic development. Work on social capital,31 learning regions32 and industry clusters33 suggests that the concentration in a region or district of a number of firms from a single or similar industries can result in a region – and its enterprises – achieving long-term competitive advantage relative to other producers. This privileged position arises out of tangible factors such as a skilled workforce, access to specialist finance, well-developed supply and distribution chains and appropriate infrastructure. However, it also reflects factors that are more difficult to quantify, including a greater likelihood of innovation as firms share ideas and collaborate on projects that are too large to tackle individually. Understanding why this happens can help other regions grow and assist in the development of national economies.

THE GOALS OF THIS BOOK This book sets out to link theories of regional development with a discussion of how that theory is put into practice. Along the way we intend to critically evaluate both. It is important that we understand flaws within current theories on regional development as well as the failings of current administrative arrangements. We are especially interested in those cases where the structural arrangements for delivering regional assistance defy theory. The attempts of central governments — Federal or State — to impose ‘grass roots’ initiatives on reluctant local communities is one example that comes to mind. The stakes attached to developing appropriate regional policies and mechanisms for their delivery are high, as successful regional development actions will be central to the economic wellbeing of individuals, communities, and the entire nation in the future. A failure in this area can, and will, reduce incomes and living standards across Australia. The Hawke and Keating Labor Governments trenchantly refused to acknowledge regional issues for the first decade they held power, but explicit regional policies were introduced in

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1994 when it was realised that the nation as a whole was not recovering from the ‘recession we had to have’. Many regions had been crippled by high interest rates and tariff reductions and lacked the capacity to recover. Understanding the connections between regional development theory and regional development practice presents many challenges, some of which are unique to Australia. There are flaws in regional development theory, and many of the textbook approaches were developed in countries with larger economies and different systems of government. Australia’s Federal system has similarities with other countries – such as the United States or Canada — but there are important differences also, and these must be understood if we are to distinguish between what works and what doesn’t work in regional development in Australia. Population size is important, as are the tax base, welfare system and industry structure. Understanding these influences is a first step to developing better and more effective programs and policies.

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DEFINING LOCAL AND REGIONAL DEVELOPMENT

Understanding the theory and practice of local or regional development is an essential first step to improving the economies and wellbeing of regions. There is a considerable volume of material on the theories that underpin local and regional development but so much has been written that the reader can be confused rather than enlightened. At the same time there is often a considerable gap between the theories behind local economic development and the practice of local or regional economic development, and this can further baffle the casual observer. A number of questions about local economic development arise that need to be answered. These include: what separates local economic development and regional economic development? Have theories of local and regional development been applied rigorously in Australia or have other factors intervened to impose less pure models of development? How important are political processes in determining economic development outcomes? And, are there features of the Australian economic and political landscape that mean our place-based strategies for economic development differ significantly from those in other advanced economies? This chapter sets out to answer these questions and sheds light on both the theory and practice of local and regional economic development in Australia.

WORKING FOR GROWTH Regardless of whether we are discussing local or regional development, there is a remarkable consensus within international research and writing about what place-based economic development activities are and should be.1 The American author Michael Tietz encapsulated

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this nicely in his observation that most experts now see ‘the economic development process as an endogenous effort to enhance a local community’s ability to create and retain employment’.2 Tietz argued there had been a remarkable change in thinking about economic development during the 1980s. Endogenous development strategies — designed to encourage business start-ups and the growth of firms already within the region — replaced previous approaches that attracted firms into their regions via cash incentives, tax breaks, the provision of land or buildings and other benefits. Ed Blakely, a colleague of Michael Tietz at the University of California, provided a more comprehensive definition: Local economic development is process-oriented. That is, it is a process involving the formation of new institutions, the development of alternative industries, the improvement of the capacity of existing employers to produce better products, the identification of new markets, the transfer of knowledge, and the nurturing of new firms and enterprises.3 Similar ideas have been put forward in Australia, perhaps most notably in McKinsey & Co’s Lead Local, Compete Global. This publication argued that at least 80 per cent of the investment in a region comes from firms already in place or new businesses that grow spontaneously, and that furthering the growth of these establishments is the best way to promote development. Of course, McKinsey & Co were not the first in Australia to focus on the potential of locallyfocused initiatives4 but they brought the issue to policy prominence nationally. The goal of economic development is ‘to increase the number and variety of job opportunities available to local people’.5 Some would quibble with this objective, as they prefer to place the emphasis elsewhere. For example, some construe economic development to be concerned with the creation of wealth within the region, as a more prosperous economy has a greater number of jobs and those jobs tend to be more secure.6 Others make strengthening the local or regional economy their priority, and attempt to add depth and breadth to the employment base. For a third group, addressing poverty is the key issue and they seek to secure jobs for the unemployed and better jobs for the underemployed. Regardless of emphasis, it is clear that priority is attached to achieving economic growth

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within the region and advancing the number and type of jobs available. Local and regional development may be attached to other policy objectives, such as the better management of natural resources7 or achieving greater social cohesion. However, these tend to be peripheral concerns. What strategies and approaches are there for promoting ‘endogenous’ growth? To put it another way, what can local or regional economic development practitioners do to help the businesses within their territory grow? There are only three basic approaches and from these a number of strategies arise. They in turn generate opportunities for individual actions. The first approach is to make your region a better place in which to do business. This means taking steps that enhance the attractiveness of the region by making it a more profitable place for manufacturing, the running of a corporate headquarters, retailing, or managing a distribution network. In effect it is a supply side measure, addressing production issues that confront enterprises within the region. The second approach is to generate new markets for the commodities and services produced within the region. Actions that fall within this approach are demand side measures, boosting the demand for the region’s product. Third, is the creation of institutions that work to see further economic growth introduced into a region. This institutional approach recognises that organisations such as professional associations, business networking groups and tourism boards have a positive impact on regional performance.

A BETTER BUSINESS ENVIRONMENT AND MARKETING THE REGION Economic development agencies can take a number of measures to make their city or region a more productive environment for businesses. A multitude of strategies is potentially available and a selection of the most prominent are discussed here. The provision of appropriate infrastructure is one way of boosting a region as a place to do business. This provision might include building or upgrading roads, providing drainage or water supply systems, building groynes and piers, or introducing new and better telecommunications. Infrastructure is important as it can fundamentally affect the profitability of businesses and regions. For example, in the mid-1990s the Keating Government’s Regional Development Program (RDP) provided funding to secure a more reliable power supply in Shepparton– Mooroopna in northern Victoria. Previously the electricity supply had

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been unreliable and periodic ‘brownouts’ could put at risk the production of an entire eight-hour shift within the food-processing sector. The manufacturing process ground to a halt and fruit and dairy products turned bad. Greater security of power helped profitability and allowed further investment in the industry. In other regions inadequate transport is a major impediment to further growth,8 while many parts of non-metropolitan Australia struggle to attract skilled and professional staff because of poorer social facilities and services — such as health and education – when compared with the capitals. This impedes the development of resident businesses and the economic growth of these regions.9 In theory at least, addressing these problems should open the floodgates to growth. Improving the skills of the workforce is a commonly used strategy to enhance profitability. The Federal government’s Area Consultative Committees (ACCs) focus almost entirely on programs that will generate a labour force with skills that match the needs of local employers and potential employers. Their efforts include the general provision of training — such as Information Technology skills, support for apprenticeships and labour force planning — as well as work placements for the unemployed and those entering the labour force. The South Australian government’s Kickstart program, for example, provides on-site training for new and expanding businesses looking to take on staff. That is, the program pays to train a number of job seekers in the skills needed within that industry, and will do so on the firm’s premises. At the end of the course the business employs a number of the trainees. Increasingly universities, colleges of Technical and Further Education (TAFE) and schools have been drawn into the drive to provide vocationally relevant education.10 The provision of business advice is a fundamental tenet of many economic development agencies. Business Enterprise Centres in particular specialise in providing expert advice to business start-ups and small businesses. The provision of information on tax and accountancy matters, industrial relations issues, intellectual property and the forms of assistance available from other government agencies are part of the ‘soft’ infrastructure supporting business within a region. Businesses often express concern about their dealings with governments and government agencies. Many economic development agencies therefore play a facilitative role, helping prospective and existing businesses gain information or undertake specific tasks. Fasttracking a development application through the planning process is

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one common example, as is providing businesses within the region with ‘hands on’ assistance in gaining access to government programs. This coordination role also extends to developing links and collaborative arrangements between government agencies. Government bodies will pool their resources to meet the needs of their region. The promotion of industry clusters generates a more productive environment by furnishing businesses a sophisticated set of benefits derived almost entirely from their proximity to other firms within their industry. Industry clusters work by bringing together businesses in fast growing industries that can feed off each other’s success. Proponents of industry clusters have argued that the growth of places such as Silicon Valley in California was due to the concentration of a large number of firms within the one industry.11 Other international examples include Sophia Antapolis in France and the M4 region in England.12 Firms in these clusters have been able to piggyback off each other in the generation of new ideas, access to specialist finance, the ability to draw upon a pool of highly skilled labour and an entrepreneurial culture accepting of change and the peculiar demands of their industry. There are other examples across the globe but essentially clustering represents the rediscovery of the advantages of the economies of industrial agglomeration. Interestingly, South Australia is the only Australian State government to adopt a formal industry cluster policy and has done so for the defence, spatial information, water and multimedia industries.13 However, individual regional development agencies have pursued cluster strategies in other parts of Australia. Mentoring and networking strategies are the last of the business environment measures to be discussed in this overview. Mentoring and networking programs aim to improve the competency of small businesses and small business proprietors. Networking programs tend to offer two benefits. On the one hand they encourage members of the network to do business with each other — thereby raising activity levels and potentially reducing the leakage of expenditure out of the region — and on the other, firms learn from the successes and failures of others. Mentoring tends to reflect a more formal program of assistance to new or small businesses and can take place within a specialised environment — such as a business incubator — or within the broader economy, with junior firms learning from successful companies and enterprises. A region with skilled business people will be more competitive in national and global markets, and therefore more successful economically.

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BOOSTING DEMAND Local and regional economies grow if new markets are found for the services and commodities they produce. Perhaps the most obvious way to boost demand is to market the region, that is, promote it and its products to a wider audience. Promotion can occur through formal advertising campaigns, the development of a website, strategic research or other strategies. Unfortunately places are more difficult to market than conventional products14 and much depends on the goals of the promotional activity. Hosting major events is a prominent promotional activity and one that has been embraced enthusiastically across Australia. Whether it is the Winery Walkabout Weekend in Rutherglen, the Gay and Lesbian Mardi Gras, the Henley-onTodd Regatta in Alice Springs, Floriade in Canberra, the Barossa Jazz Festival or even the Sydney Olympics, the objective remains the same: attract customers for a short-term flurry of sales and in the longer term, raise the profile of the region and all that it offers. The development of new industries or the downstream processing of existing regional products is a strategy that has been pursued energetically by economic development agencies. Such techniques are attractive as they can result in value-adding employment, as well as adding breadth to the region’s employment base and raising the overall quantum of regional output. Examples include the development of Blue Gum plantations for woodchip production in South-West Victoria and South-West Western Australia; on-farm intensive aquaculture production of freshwater crayfish in Central Queensland; and, the emergence in and around Swan Hill in Victoria of high quality stone fruit production for export. In the latter instance, the introduction of new types of peach and other stone fruits, as well as the implementation of quality control processes, has resulted in the opening of niche markets in Asia. The region’s product now fetches a far higher price than ever achieved when fruit was produced for canning. Some strategies designed to boost demand are explicitly directed at engaging with global markets. It is an article of faith within local and regional economic development policy in Australia that our domestic markets are too small to guarantee prosperity and that businesses and regions need to inject themselves into international trade in order to secure a more prosperous future.15 Certainly this philosophy underpinned the Keating Government’s Regional Development Program and the Howard Coalition Government’s Supermarket to Asia initiative. Austrade, the Federal government’s trade agency,

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funds a program entitled Export Access/Trade Start which provides non-metropolitan communities with a staff member to work with local businesses to assist them in their export activities. At a more local level, many regions, cities and towns have entered sister city relationships in the expectation that cultural and personnel exchanges with other parts of the globe will eventually result in trade.16 Some places have taken direct action and invested in programs designed to propel their small and medium sized enterprises into export markets. In the mid-1990s local governments in the North West of Adelaide, and more recently the City of Onkaparinga on the southern perimeter of the metropolitan area, engaged a consultant to assist their smaller businesses to commence exporting. Attracting direct foreign investment performs a similar role, as firms based overseas will sell Australian-produced goods in their other countries of operation. At a more local level, Main Street Programs attempt to generate new markets — and revitalise existing markets — for small retailers. They use the beautification of the streetscape and marketing campaigns to lure back customers who might have been attracted away to a larger and more modern shopping centre. They also attempt to entice new customers to the district.17 Main Street Programs operate in both rural and metropolitan areas and there is sufficient evidence of their success for them to secure ongoing government support. A review of Main Street projects in NSW concluded the towns assisted had ‘an increased sense of community pride, an improved perception of the town and an increased number of visitors’.18

C R E AT I N G T H E I N S T I T U T I O N S F O R G R OW T H At first glance there appears to be little logic in economic development agencies attempting to promote growth by creating new institutions or groups. Surely regional economic development efforts should be directed at assisting businesses, not encouraging the proliferation of associations and committees? There is, however, firm justification for such strategies. First, it is important to take account of the practical reality that economic development agencies in Australia are relatively small and lack the capacity to exert a significant influence on the growth of all parts, and all industries, within their region. Generating community groups and associations multiplies their resources and impact.

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There are strong theoretical grounds for establishing appropriate institutions for growth. A number of prominent researchers have suggested that these institutions are central to creating more productive regions. In her review of the ‘economic miracle’ in Silicon Valley, Anna Lee Saxenian highlighted the establishment of professional associations and industry groups. The professional associations worked to ensure that engineers and other professionals in the Valley were kept at the cutting edge of a rapidly changing technology, while the industry bodies lobbied governments to address environmental and other problems that were threatening the region’s further growth.19 British researchers Nigel Thrift and Ash Amin argued that ‘institutional thickness’ is an important component of the growth of many successful regions, particularly those that have negotiated the process of industry restructuring. Institutional thickness is characterised by a strong institutional presence with a plethora of institutions, local chambers of commerce, training agencies and trade associations working as part of a network and collectively representing the region. 20 These institutions recognise they are involved in a common enterprise and have an established pattern of interaction, featuring co-operation, contact and information exchange. Overall it creates an ‘institutional thickness composed of institutional interaction and synergy…It is a “thickness” which continues to stimulate entrepreneurship’.21 Certainly Robert Putnam’s work on the ‘Third Italy’ suggests that region’s continuing economic success reflects the productive interaction between public and private sector institutions.22 Finally, we should look to the ideas on networks between firms and associations within regions. The concept of an ‘associational economy’ was brought to prominence by Phil Cooke and Kevin Morgan.23 Their work suggests that regions where firms and agencies develop networks of information exchange have a competitive advantage, especially when faced by restructuring.24 In the face of this overwhelming weight of opinion, perhaps we should conclude that too little attention has been paid in Australia to the development of these institutions.

BIDDING FOR JOBS If there is an apparent consensus on what local and regional economic development is — endogenous development — there is also a level of agreement on what it should not be — industry attraction.

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Policies and programs to attract businesses have a very long history in Australia and elsewhere. In large measure they revolve around governments providing an incentive for a firm to either come to their region, or stay in their region. That incentive can take any number of forms, ranging from cash handouts, to the supply of land and/or buildings, guaranteed orders, cheap loans, tax breaks and subsidised transport. Industry attraction/recruitment policies — or the more colourful American term ‘smokestack chasing’ — are widely recognised as bad policy. 25 Industry recruitment carries great risks for governments and communities. In the first instance, such subsidies are only likely to influence the location decisions of ‘footloose’ industries who are liable to move to a new donor region once the current subsidy arrangements expire. This was the experience of the UK Government in the 1970s and 1980s when they established low-tax ‘Enterprise Zones’. Darwin has similarly suffered in its attempts to attract Asian investment by providing a tax-reduced haven. Second, the provision of subsidies to some businesses encourages others to seek them also. In 1998 the transport firm Scotts of Mt Gambier in South Australia responded to media reports of extensive subsidies to incoming businesses by threatening to move their headquarters to Victoria if they were not offered an equal inducement. Third, the provision of incentives erodes the tax base of the local government or state and imposes additional costs on other taxpayers. Fourth, the footloose industries attracted by incentives may not become ‘embedded’ within the local economy. Their external origins mean they are less likely to develop business links with other firms in the region, thereby muting their impact on overall regional growth. Fifth, there is always another region or place willing to bid more. Companies likely to be swayed by incentives know no loyalty: in 1998 the South Australian government proudly announced an assistance package of approximately $5 million that secured the Berri Fruit Juice processing plant in the Riverland. Two weeks later, the Victorian government announced that the headquarters of the same company would be moving from Adelaide to Melbourne. There are clear dangers associated with industrial recruitment but it is an approach still pursued throughout Australia, as well as in the United States26 and Europe.27 Why it persists, and even thrives, will be discussed in Chapter 7, but it is sufficient for the moment to recognise its failure to fade away.

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THE AUSTRALIAN MODEL OF LOC AL AND REGIONAL DEVELOPMENT How is local and regional development in Australia organised? Or to put that another way, what is the framework upon which economic development activities and institutions in this country hang? The answer to this question is — in some respects — simple, as the three tiers of government, and the constitutional and financial arrangements that determine their relationship to each other, form the backbone of placed-based economic development initiatives. Australia’s federal system of government has a pervasive influence on how local and regional development is conceived and delivered. It has a first order impact on which tier of government delivers what type of development assistance. But there are also secondary effects. It largely determines who can afford to plan for, and implement, local and regional development, how economic development activities relate to the other actions of government, the priorities set by individual governments, and what type of activities are pursued. Importantly, it determines how much is spent on local and regional development and rules out some types of policy intervention found in other nations. T H E A U S T R A L I A N G OV E R N M E N T As a number of academics and pundits have argued, the Federal government is probably the only tier of government in Australia with the necessary resources to sustain a coherent and viable program of local or regional economic development.28 As the collector of 75 per cent of public sector revenues it has greater financial capacity than either State or local governments.29 But Federal governments have long shied away from an explicit involvement in formal regional development initiatives. Throughout the 1960s an Inter-Departmental Committee sat for eight years considering whether the Federal Government should act to promote decentralisation of people and economic activity.30 There was a brief flurry of activity in the early 1970s under the Whitlam Labor Governments, and then virtually nothing for almost 20 years. The Keating Government’s Regional Development Program31 was hastily jettisoned by the newly-elected Howard Coalition Government because it considered it had no constitutional role in the area, and that Federal involvement would result in overlap and duplication with State and local government efforts.32 In the year 2000 the Howard Government re-engaged with local and

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regional development issues — admittedly at an initially modest level — via the Regional Solutions Program. To a certain degree Federal government attitudes to formal engagement with local economic development are less important than what has happened in practice. On the ground, Federal programs have supported many economic development agencies and initiatives, and have done so over a considerable period of time. Throughout the 1980s and early 1990s programs run by the Office of Labour Market Adjustment (OLMA) supported community groups and economic development initiatives. In the mid-1990s Regional Development Program funding was available, but more considerable resources could be garnered from the Working Nation program. Since 1996 economic development bodies have been able to gain access to Regional Development Program funds administered by Area Consultative Committees (ACCs), but additionally, they have been able to tap into National Heritage Trust (NHT) monies, Networking the Nation (NTN) funding, the Export Access Program, as well as resources from the Regional Solutions Program. Federal funding has also been available for business incubators. In practice then, the Federal Government has been an important player in the local and regional economic development scene. Its role has been significant, if more modest than it might otherwise have been.

S TAT E G OV E R N M E N T State governments are probably the most visible participants in regional economic development and in aggregate would make the largest investment in encouraging growth locally. State governments are substantial investors in the infrastructure and services that sustain economic activity in metropolitan and non-metropolitan regions. The annual Budget Papers of any State government — or the newspaper summaries released immediately after – list the major investments in the wellbeing of the state and regional economies. New freeway construction, the building of power stations, the expansion of schools, the development of new information technology courses and facilities and the provision of public housing, all have a direct impact on the prospects of regional economies. The expenditure decisions of State governments — and for that matter, Federal governments also — have a far greater impact on the relative prosperity of regions than their stated regional or local development policies. Many would contend that State governments feather the nest of their

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capitals first: the NSW Country Mayors’ Association, for example, has long argued that NSW State Governments believe the state ends at the Blue Mountains and that country NSW has received too little funding for too long.33 If we accept that regional development policy is a product of what governments do, rather than what they claim to do, then most State governments have favoured their capital regions ahead of their non-metropolitan parts. Many State governments have a long history of involvement in formal regional development initiatives and in the immediate postwar period decentralisation programs were favoured.34 In line with the ‘growth pole’ theory of the time, State governments used tax breaks and financial incentives in an attempt to create growth centres.35 It was hoped that growth in these centres would become self-sustaining and result in a better balance between metropolitan and non-metropolitan growth.36 Paul Collits has suggested that the period 1965 to 1975 was the high water mark for these initiatives and this reflected the preference for dispersed development in Australia, recognition of the rising costs associated with the growth of Australia’s biggest cities, evidence that the rural population was in decline, and the strength of the Country Party. 37 In NSW, Development Corporations were funded by the State government and were used to advance the development of the selected growth centres. Many of these Development Corporations persisted into the 1980s. The decentralisation programs embarked upon by the governments in NSW and elsewhere can be considered an heroic modernist project, with wide ranging ambitions to halt the growth of the big cities and breath life back into the ‘bush’. Of course they failed, and did so because of competition from other states and because State government programs were more heroic in rhetoric than in reality.38 Since the early 1990s virtually all States and Territories have established frameworks for regional development and in large measure these reflect changed public sector attitudes away from decentralisation philosophies and towards notions of locally driven economic development.39 NSW and South Australia have State Government-sponsored Regional Development Boards, Western Australia has nine Regional Development Commissions, the Queensland Government supports a number of Regional Development Organisations,40 and in Victoria, local governments have held responsibility for local economic development since their reform by the Kennett Government in the mid-1990s. The titles of

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these organisations vary, but their role is essentially the same in all parts of Australia. They serve as the primary organ for helping businesses grow within their region, coordinate public sector economic development initiatives, engage in planning studies, provide advice, market the region, and support the work of community and other smaller groups. Curiously, these regional development organisations are almost entirely restricted to areas outside the capitals. It is as if metropolitan regions are homogenous, with all parts sharing equally in metropolitan prosperity. It also reflects both the last vestiges of decentralisation philosophies, and the body politic responding to the demands of a disempowered and disenfranchised non-metropolitan electorate. At a more local level, the majority of State governments also support Business Enterprise Centres, Main Street Programs,41 and labour market training initiatives. There are deep-rooted tensions within the regional development programs of State governments. It can be argued on many objective measures that they have failed, especially in non-metropolitan regions that continue to experience a loss of population and productive capacity. Sorenson commented that ‘they have pursued regional development in a desultory and erratic manner’.42 In part this reflects the shifting priorities of governments: in NSW a commitment to decentralisation and balanced state development was replaced in the 1980s by fervent actions to secure Sydney’s place as the corporate hub of the Asia-Pacific region.43 The aggressive pursuit of the headquarters of multinational companies left little margin to wonder about the impacts on the middle and outer suburbs,44 and none for regions beyond the capitals. Questions of scale lie at the heart of this tension in State programs, as governments have attempted to extend the reach of local economic development models. The work of Blakely and others on the ‘new economic development paradigm’45 was concerned with strategies and actions conceived and implemented by individual communities — that is, individual towns or cities. In Australia these ideas were implemented across whole regions. Regional development organisations simply substituted their previous styles of operation — based on the payment of subsidies to relocating firms — with a philosophy of endogenous development. 46 This change received endorsement at the national level,47 without questioning how a single organisation covering a territory of thousands of square kilometres could adequately work for the local development of all its constituent settlements and districts.

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L O C A L G OV E R N M E N T Most local governments have some formal role in economic development activities, though involvement varies considerably by state and location. As noted above, local governments have been the primary agents for economic development in Victoria since the mid1990s while local governments in Queensland have always played a much broader role within their communities than elsewhere in Australia. Their participation in the provision of major infrastructure — such as water supply, roads and electricity — has given them a greater capacity to influence growth. Local governments remain the smallest and poorest tier of government in Australia and their circumstances are worsening. Over the last two decades the real value of financial support to local government from the Federal government has fallen — as has state financial support in some jurisdictions — while the tasks mandated to local governments by the other tiers of government have grown.48 But this has not stopped local governments from promoting their local economy. Many provide cash incentives or infrastructure to attract firms, and the majority would employ at least one staff member with responsibilities for economic development. In some places — notably Victoria — there are large Economic Development Units within individual local governments. While there is considerable variation around Australia, it is common for them to join State governments in funding regional development agencies, Business Enterprise Centres and or initiatives. Often they host special events designed to draw in tourists and will market their region nationally and internationally. Some have adopted very innovative approaches. The Richmond River Council in NSW, for example, developed a new bridge-building system and applied that technology to win contracts that brought work into its region.49 Others, such as the Dubbo City Council, have sponsored their own Development Corporation. C O M M U N I T Y G R O U P S A N D T H E P R I VAT E S E C TO R Neither the private sector nor self-help groups representing a town or smaller settlement have played a significant role in local or regional economic development in Australia, though that might be changing. In the US the private sector has a strong influence on the economic development scene, either through groups of locality-based entrepreneurs coming together to form ‘growth coalitions’50 that seek out investment for their region, or through private sector funding of

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established economic development agencies. The utility companies, for example, often contribute financially to local economic development efforts. By contrast, private sector funding is a minute proportion of the total received by agencies in Australia.51 Business organisations — such as Chambers of Commerce — rarely address local or regional development issues, though there are exceptions.52 In the US development efforts are often organised at the level of the individual town or city, but to date that model has not been prominent in Australia. Queensland is, perhaps, the exception. It has a number of successful economic development bodies that rely upon voluntary labour. Some communities have managed to ‘pull themselves up by the bootstraps’ by organising locally. The town of Coolah, for example, in the Central West of NSW faced harsh times when its sawmill closed due to government imposed restrictions on logging. A series of meetings galvanised public action which in turn resulted in the formation of a ‘community combat group’ and the securing of over $2 million of government grants for information technology training and streetscaping.53 By 2001 Coolah was mooted nationally as an example of how small towns can revive themselves.54 Cummins on the Eyre Peninsula offers a further illustration: it fought off its expected demise by organising a very successful tourism event based around Kalamazoo racing. The overall impact on the town’s economy is slight, but it has provided a fillip to local attitudes and a flourishing weekend of trading once a year. Unfortunately, these are relatively rare exceptions and community-based initiatives have not been a significant feature of the economic development scene in this country. Without resources and without professional staff, community groups often languish, depending upon regional development agencies and local governments for their continuing survival. Even success stories, such as Coolah, rely heavily on funding from government and quasigovernment bodies. Since the mid-1990s some governments have attempted to strengthen this sector through programs aimed at fostering regional leadership and encouraging greater numbers of residents to become involved in community-building. The South Australian, Victorian and Federal governments55 have all espoused philosophies of selfhelp and self-reliance for non-metropolitan communities. Regrettably, the promotion and implementation of community development approaches in Australia have been flawed as they have

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been without systematic support and funding. A philosophy that believes communities should be self-reliant is admirable in many respects, but it inevitably generates winners and losers. As Sorenson observed back in 1994: If past form is any guide, there are some localities well versed in the grantsmanship game who will predictably scoop the pool. There is a real risk that money will flow not so much to the deserving cases as to the articulate and connected.56

L E S S O N S F R O M OT H E R C O U N T R I E S Before turning our attention to other topics it is valuable to consider how local and regional development is organised and delivered in other advanced economies. The similarities and differences with Australia can highlight both the strengths and weaknesses within our own system. Regional development in the European Union presents a very different cut on economic development when compared with Australia. Ours is a small-scale affair when compared with the nations in the European Union. The significance — both in terms of impact and sheer size — of regional development assistance within the European Union should not be underestimated. Ireland provides an illuminating example of the impact of regional development policies in Europe because it has been a substantial recipient of regional assistance. Mac Sharry, White and O’Malley57 report that European Union regional development policies in the form of structural assistance funding raised Ireland’s GNP through the 1990s ‘by between 3 and 4 per cent above the level it would have reached without EU transfers’. Some £3.1 billion was received between 1989 and 1993 under the first tranche of structural funds in four main areas: agriculture, fisheries, tourism and rural development. As Mac Sharry et al commented, the impact of this funding was substantial: Some 8600 farms were supported, with 120 000 farmers receiving compensatory allowances. In the food-processing sector, 102 projects helped create 3363 jobs, while a total of 2030 young trained farmers received installation aid. The industry program contributed to the development of the manufacturing and international-services sector. Industrial output expanded by almost 7 per cent annually over the period,

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with similar rates of increase in the manufacturing and building sectors. Between 1989 and 1993, some 307 km of national primary roads were improved or upgraded, along with 170 km of roads supporting industrial and tourism development. Facilities at Dublin, Shannon and Cork airports were upgraded, and the Dublin–Belfast rail link was improved. In addition, investment has been concentrated on ports. Over the first programming period, some 250 km of sewers and 166 km of trunk water mains were installed, and 52 sewerage pumping schemes were constructed.58 The second tranche of European Union funding (referred to as Delors 2) provided an even greater level of assistance to Ireland. Some £4.6 billion (A$ 9bn) was received from Community Support Framework Programs between 1994 and 1999. This second round of funding aimed to ‘capitalise on the strengths of the Irish economy, while remedying some of its structural weaknesses’.59 Funding went into agriculture, forestry and rural development, as well as raising the skills profile of the workforce through investment in education and training, including the provision of 255 000 apprenticeships. And we should bear in mind that all this assistance was directed at a country with a population of 3 million! It is important to acknowledge the immense size — by Australian standards — of regional development assistance in Europe. Admittedly, Ireland has been one of the largest recipients of European Union structural assistance and so may be considered atypical. However, Ireland’s experience is indicative of the scale of programs within the European Union. The assistance made available by the European Union is of an order of magnitude greater than any program initiated by Australian governments — Federal, State or local. The Keating Government’s Regional Development Program — which was seen as a major step into regional development by that government — had funding of just $150 million over five years60 while the Regional Solutions Program has a budget of $90 million over four years. Of course, European Union funding is a special case, with Structural Adjustment funding aimed at raising the economies of the worst-performing nations. European Union funding doesn’t reflect the commitment of individual nations to regional development. Taking the United Kingdom as an example, the British Government has long

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played a leading role in either promoting or controlling the geography of economic development. Formal regional planning was in place from the 1940s to the early 1970s.61 Through the 1980s and 1990s Urban Development Corporations — of which the London Docklands Authority was best known — operated at a number of sites throughout the country62 rehabilitating degraded industrial landscapes and directly investing in the wellbeing of regions. More recently, the Blair Labour Government established eight Regional Development Agencies (RDAs) that encompass all of England, except London.63 They have substantial budgets ranging in 2000-01 from £31.4 million for the Eastern RDA, through to £176 million for the North West.64 Across England £911 million was spent by RDAs in 2000–01 and the budget is expected to rise above £2 billion by 2002-03. The experience of economic development policies and programs in the US provides keen insights on how another nation has dealt with the challenge of encouraging growth. Like Australia, the US is a Federal system, it has a low tax regime and a preference for private sector solutions to problems of public policy. As in Australia, placebased economic development activities in the US are the responsibility of State governments and local communities. The similarities between local and regional economic development in Australia and the US extend to the types of intervention pursued: there is a primary focus on securing growth by encouraging the development of businesses already within the region, as well as business start-ups. Business incubators, networking programs, and business capacitybuilding initiatives are the working tools of trade employed by communities committed to ‘economic gardening’, to use the language of one American practitioner.65 However, as in Australia, industrial recruitment persists. In some cases it is seen as a profitable investment, in others it is not. Individual communities in the US take a strident role in securing growth, but their experience differs from the Australian case because often they are the local government. Crucially they have tax revenues to support their economic development activities. American ‘City Fathers’ are not shy about ‘adding a penny’ to sales taxes to fund economic development, nor do they hide from bed taxes on hotels, or a levy on commercial property rates.66 This is probably the most significant difference between American and Australian approaches as Australia’s local development agencies don’t have access to the resources available to their counterparts in the US.

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THE PLACE OF SOCIETY WITHIN ECONOMIC DEVELOPMENT How Australia pursues placed-based development is clearly very different from the European or American models of local and regional development. When compared with the Europeans, Australian efforts can only be characterised as local development, because of their limited scale and funding, as well as the failure to address questions of major infrastructure provision. As local economic development, Australian strategies and actions are less appropriately organised and resourced than those in the US. There are some types of economic development activities that local and regional development policies in Australia have avoided. Significantly, there is no social dimension to place-based economic development strategies in Australia. Other nations have recognised that local economic development alone will not address the problems of regions with intractable problems such as high rates of long-term unemployment, a degraded environment or poor skill levels. In Australia, economic development has been separated from community development with the latter term used to refer to programs dealing with the problems confronting the marginalised or disadvantaged. They have attempted to advance the welfare of the disadvantaged by facilitating greater levels of social interaction, providing financial support, improving housing conditions, meeting service needs and helping the unemployed find jobs. Human services departments, church groups, State Housing Authorities, health bodies, social security agencies and departments of rural development have been active in this field. Significantly, economic development agencies have not been involved in these initiatives and there have been few attempts to ‘join up’ social and economic assistance. The poorer regions of our cities have probably been the biggest losers as a consequence of the failure to integrate economic development and community development. The outer metropolitan regions and old industrial estates have the greatest concentrations of lowincome households, households without adults in employment and dependency on social security and other government payments.67 These regions have effectively been denied assistance by mainstream State regional development programs because they fall within the metropolitan area, and they have not benefited from Federal interventions because of the national government’s aversion to participation in this area.68 Large-scale government programs in these areas

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are few and far between, and mainly limited to the development of run-down public housing estates in places such as Elizabeth and Salisbury North in Adelaide, or Holroyd in Sydney. Graham Haughton, the British academic and expert on economic development, observed a similar phenomenon in England. He too noted the tension between economically focused approaches to improving local wellbeing and those that dealt with social exclusion. He observed that through the early 1990s: Community development became the sole province of workers in social work or housing departments. In effect anti-poverty work became less of an integrated strategic approach to improving local wellbeing and more of a necessary residual activity catering for those bypassed by strategies to improve local wealth creation as the means and ends of improved local competitiveness.69 Haughton argued that it is possible to develop an integrated approach to community development that embraces both the advancement of the local economy and issues of social exclusion. His model is built upon solid intellectual foundations. The OECD publication Reconciling Economy and Society: Towards a Plural Economy critically examined social exclusion and attempted to integrate the work of the French historian Braudel on the architecture of society into a policy and operational framework. The OECD attempted to: …establish an architecture of society which sees the economy as consisting of at least three layers: subsistence, the local market economy, and a world economy. The argument broadly speaking is that a policy which addresses just the top layer misses important issues of survival and nurturing at the local level… Rather than constructing policy around a single, flat economy, focused on building competitive advantage in world markets, it is important to construct policy around all three layers, including policies for everyday survival for the individual.70 The implications of this work, and this approach to the understanding of community development, are profound. No longer should economic development be given precedence over the needs of the poorest and most marginalised within society. Community development:

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extends beyond the formal economy to consider the needs of the population at large, and that in setting about its task it aims to balance economic, social and environmental concerns, rather than prioritising the economic approach above all else.71 Haughton argued that governments should strive to establish community economic development policies and programs that address each of the three tiers identified by Braudel and the OECD. That is: •

At the level of the subsistence economy attention is given to the nonmarket and informal sector activity. The intention is to help individuals with basic survival and to build up local kinship and friendship networks;

•

The local market economy is addressed by promoting self-employment, small business development and community initiatives, such as co-operatives. Here the objective is to develop an integrated economy where businesses trade amongst themselves, thereby reducing the leakage of expenditure and increasing the range of economic activities within the community;

•

At the level of the global economy, community development can provide training and work experience to help people overcome social exclusion and assist individuals move into jobs with globally-active firms. Community development is also seen to serve a role in lobbying to ensure the provision, and maintenance, of services and infrastructure.72

Haughton’s model of community economic development — to adopt his language — has much to commend it, particularly in the way it integrates concerns with the poorest in society with strategies to promote localities within the global market place. It recognises that the unemployed and the low skilled often miss out when programs are directed solely at creating economic growth, and that it is important to break down attitudes and barriers that keep some out of the formal workforce. The practical importance of this is beyond dispute. Researchers based in Newcastle (NSW) have noted the presence of ‘Green Walls’ within the Hunter Valley labour market. This refers to the barriers that stop the unemployed from the traditional coal-mining communities finding work in the fast growing viticulture and winemaking industries.73 There has been growth within the region but cultural, educational and other factors have stopped these job-seekers from reaping the benefits of that boom.

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European governments have accepted that social programs are an important armament in meeting the needs of the poorest regions and towns. The UK government has made Area Regeneration Programs the primary function of its new Regional Development Agencies.74 They will build infrastructure and facilities to enable economic development but at the same time, they will be responsible for strategies designed to improve living skills, social capital and employability. At a broader level, the European Union, the French and Irish governments have accepted the need to embrace Social Economy solutions within their suite of programs for addressing disadvantage. The Social Economy is a term used to refer to worker- and community-owned organisations that have ‘an explicit commitment to improving the quality of life in a community’.75 It includes Housing Associations, Credit Unions, co-operatives, community enterprises and charitable and self-help organisations. It reflects members of the poorest communities working together to meet their social and economic needs. Governments have chosen to support these strategies by providing facilitative funding with the Irish government, for example, budgeting over £60 million per annum for Social Economy measures. There is considerable potential for this approach in Australia, especially in communities that have lost services or are confronted by job losses, but to date governments appear to have been oblivious to this potential.

CONCLUSION What local and regional economic development is, and should be, is known. The philosophies and strategies that can help a region or place grow economically have been documented by numerous researchers and implemented around the globe. The long-term growth of regions and localities reflects their intrinsic strengths — the capacity of their labour force, their natural resource endowments, their inventiveness, their ability to take advantage of world markets — and local and regional development programs need to capitalise on existing competencies and generate new abilities. Economic development agencies have choices in how they pursue these strategies and need to tailor their actions to local circumstances. In many ways the theory of local and regional economic development is far less problematic than its implementation: making the theory work and developing strategies that are appropriate for each nation, region, town and remote settlement is the greater challenge.

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The differences between local and regional development in Australia and elsewhere reflect practical factors rather than a different interpretation of the same corpus of theory. Australia has a much more restricted approach to regional development than other nations, and the theory of local and community development sits uncomfortably with the institutions we have created for its implementation. The penny-pinching attitude of governments is one of the culprits, as is the nature of Australian Federalism. Federalism in Australia ‘has a tendency for spatial inertia, frustrating the potential of more systematic or ambitious planning of urban and regional development’.76 The European Union has embraced the concept of ‘subsidiarity’, the principle that government programs should be delivered by the lowest tier of government competent to do so. That principle isn’t evident in the workings of Australia’s system of government and too often it has meant that place-based economic development has been consigned to a sort of limbo. The outer urban regions of the capitals have been completely ignored by State government programs, as have other disadvantaged metropolitan areas. Outside the capitals regional development bodies have been created with limited funds and huge territories while both metropolitan and non-metropolitan local governments have been left to pick up where they can. The absence of a better-organised approach to the wellbeing of regions and communities has contributed to some significant failings and omissions within economic development in Australia and ultimately, the economic performance of the nation.

KEY LESSONS IN LOC AL AND REGIONAL DEVELOPMENT W H AT D O E S L O C A L A N D R E G I O N A L D E V E L O P M E N T AT T E M P T TO D O ?

Local and regional economic development programs attempt to make their regions and towns better and more productive places to do business. They work with existing firms to encourage further growth, as well as nurturing the emergence of newly established enterprises. Boosting demand for the region’s product is another important strategy for securing long-term growth and this can be approached through marketing, the development of new industries and adding further value to existing regional products.

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H OW I S I T D O N E ?

Local and regional development objectives are pursued by Federal, State and local governments across Australia, although the latter two are the most significant. The expenditure decisions of governments have a direct impact on local and regional wellbeing, but this is generally not recognised in a formal sense. Most State governments have created regional development bodies with a mandate to pursue local economic development. However, in Victoria local governments are responsible, and in Queensland community-based organisations are more active. W H AT C A N W E L E A R N F R O M OT H E R C O U N T R I E S ?

The European Union funds development programs that are significant at the regional level. It provides substantial grants to member countries, sufficient to fund major infrastructure works and large-scale employment and industry adjustment assistance. Member states within the European Union make substantial investments in regional development also. European approaches to addressing the problems of disadvantaged cities and regions include social, as well as economic, tools. The US model of economic development is much more similar to Australia’s experience, but local communities are better placed because they use local sales tax and other taxes to fund economic development activities.

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W H AT I S A R E G I O N A N D W H Y D O E S I T M AT T E R ?

Any discussion of regional development issues and policies must examine the concept of the ‘region’, as this is a term with a wide range of meanings. In some contexts regions are groupings of nations, such as the Association of South-East Asian Nations (ASEAN) or the European Community (EC). In others, regions are areas that are smaller than the nation, and this is the meaning used in this book. These sub-national regions are areas like the Riverina in New South Wales, the Darling Downs in Queensland, the Wheatbelt in Western Australia or the Melbourne metropolitan area. Although in Australia the term ‘regional’ generally means areas outside the capital cities, it must be stressed that regions exist in both metropolitan and non-metropolitan settings. Which regions are then selected as the sites for government involvement in regional policy is a political decision, with Coalition Federal governments largely excluding the cities and Labor Federal governments including them. Regions can also be defined at various scales. People in Western Australia or South Australia may identify ‘the eastern States’ as the economically and politically dominant (and dominating) region of Australia. But this latter area can be broken down into smaller regions, such as the Illawarra or the Central West of New South Wales, whose inhabitants may perceive Sydney as just as dominating as do the South Australians. So why are regions significant, how are they defined, and why is it useful to identify them? This chapter examines these questions.

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THE SIGNIFICANCE OF THE REGION IN REGIONAL DEVELOPMENT There are a number of reasons why regions have become a growing focus for policy and practice in economic development. First, there is the continuing problem of regions with high unemployment, below average incomes, poor educational attainment and, in the rural areas, declining levels of service provision. The persistence of these regional problems suggests the need for a regional rather than a solely national approach to these problems, although what this approach should be is a matter of considerable debate. Second, it is claimed that the reduced power of the nation state, as a consequence of globalisation and trade liberalisation, has elevated the relative significance of the region as the scale at which public policy can have some influence on economic competitiveness.1 Third, ‘the region has been rediscovered as an important source of competitive advantage in a globalizing political economy’.2 Scott contends that: ‘Regions are once more emerging as foci of production and repositories of specialised know-how and technological capability, even as the globalization of economic relationships proceeds at an accelerating pace’.3 Similarly, Keating argues that contemporary approaches in regional development policy see ‘place as a complex of social relationships, norms, institutions and understandings’ which have become a factor of production like distance from markets, labour and raw materials.4 There are a number of key ideas in this new approach to regional development policy. These include the importance of local and regional institutions, the role of regional social capital, the concept of the learning region, and a recognition of the economic advantages of proximity.5 For example, an essential component in the ‘new regionalism’ view of the region as a source of competitive advantage is the existence of a set of regional institutions that promote collaboration, innovation and learning. Cooke and Morgan argue that: … successful innovation is becoming ever more dependent on the associational capacity of the firm — that is its capacity for forging co-operation between managers and workers within the firm, for securing co-operation between firms in the supply chain, and for crafting co-operative interfaces between firms and the wider institutional milieu, be it local, regional or national. This institutional milieu is understood in a dual sense, consisting of both ‘hard’ institutions (the ensemble of organizations, like

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government agencies, banks, universities, training institutions, trade associations, etc, which have a bearing on economic development) and ‘soft’ institutions (the social norms, habits, and conventions which influence the ways in which people and organizations interact).6 Consequently, it is contended that it is at the regional level that clusters of firms form and become competitive through enhanced external economies and enhanced innovation, and that this is therefore the appropriate level for public policies to support innovation and competitive industries. Social capital is an important part of this ‘institutional milieu’, and it is largely produced at the local and regional levels through the relationships or associations between people in a community. By working together within neighbourhoods, community organisations, business associations and firms, people develop shared norms, values and understandings, and a wide range of social connections.7 These constitute the social capital that enables communities to work together to solve common problems. In business, trust between firms is the basis of the co-operative networking that facilitates innovation and its diffusion, as noted above.8 A small number of studies also suggest that regions with high levels of social capital have higher levels of investment, better levels of governance, and higher rates of economic growth than regions with lower levels of social capital, when other factors are controlled for.9 In the opinion of the National Economics team responsible for the annual State of the Regions reports: Social capital is important in both economically successful and marginalised communities. In high growth knowledge based communities, the creation of social institutions and meeting places, vibrant business and professional organisations, and community-based networks for childcare often underpin continuous innovation. In marginalised communities strong social capital is crucial to successful revitalisation of local business centres and self help for households to patch together the resources for learning and employment.10 As a result of these arguments about the role of the region in regional development, policy makers have become increasingly inter-

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ested in regionally-based industry and innovation strategies, such as cluster formation, and in the regional institutions and social capital on which these strategies are thought to depend. These questions are examined further in Chapter 6. However, there can be dangers in this focus on the region as the level for addressing regional problems and industry development. First, we cannot assume that a region constitutes a community with common interests. Regions have internal economic and social divisions, and often conflicting interests, so the question of how regional agendas are determined is an important issue of regional governance.11 In addition, many people, and particularly those living in the major cities, may not feel that they belong to a region, but see themselves living and working at a national or even international scale. The major firms may also have only a limited attachment to the region in which they are located, particularly if they are branch plants whose management belongs to the corporation rather than the region. If there is a limited sense of regional identity, there may be a limited ability for people to work together for regional development. Second, regional problems cannot be tackled solely at the regional level. They are largely the result of national and international policies and forces, and they require support from State and national policies. The argument that globalisation has led to a decline in the ability of the nation-state to regulate economic activity within its borders should not be pushed too far, as there continue to be differences between nations in the ways they regulate finance, business and labour, as well as shifts within nations over time. Third, the adoption of policies based on trying to emulate a handful of successful regions, such as Silicon Valley in California, Baden-Württemberg in Germany and Emilia-Romagna in Italy, is problematic, as the institutional basis of their success (which even differs between these regions) is difficult to reproduce. Some of these issues are also discussed in Chapter 6.

TYPES OF REGIONS A region is a group of adjoining areas or places that have something in common.12 Geographers identify several types of region, according to what it is that they have in common. The first type is homogeneous or uniform regions, which consist of areas that are similar in one or more of their characteristics. They could be climatic regions (areas with similar climates), bioregions (areas with similar biophysical

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environments, increasingly used in planning for natural resource management), economic regions (areas with the same economic base, such as manufacturing, wheat/sheep production, or tourism), or social regions (areas with a common history, ethnicity, culture and identity). Social regions are difficult to identify in Australia, but possible examples include areas of strong Aboriginal land ownership, or areas with distinctive histories of European settlement, such as the Barossa Valley. Some homogeneous Australian regions are clearly identifiable, because they are recognised by their inhabitants and the rest of Australia as distinctive areas. The New England region in New South Wales, Far North Queensland, and the Western District of Victoria are regions that are widely recognised. They combine distinctive physical environments with distinctive histories, economies and even social structures, and their inhabitants identify themselves as belonging to their region. Compared with Europe and even North America, however, Australia lacks the cultural variation that helps to define regions in areas of longer European settlement. While Aboriginal cultures could be divided into some 250 distinct languages, and further divided dialectically into some 600 distinct linguistic varieties,13 European settlement destroyed much of this regional identity except in relatively remote places like Arnhem Land or the Pitjantjatjara area of central Australia, and replaced it with a high level of cultural uniformity. For example, there are no regions like Normandy or Provence in France, with distinctive cultures and cuisines, although the Barossa Valley in South Australia does have a regional cuisine based on the Silesian traditions of the early German-speaking settlers.14 And while many Australians claim to be able to pick the state of origin of a speaker by the way he or she pronounces particular words, and these subtle differences between the States are supported by linguistic research,15 variations in pronunciation between regions are much less than those within regions related to socioeconomic status and education. There are also regional variations in a number of words for common objects. For example, a swimming costume is a generally a cossie in New South Wales, bathers in Western Australia, South Australia, Victoria and Tasmania, and togs in Queensland. Bryant16 identifies four main lexical regions in Australia — Western Australia; south-east South Australia; Victoria, Tasmania and the Riverina; and New South Wales and Queensland — with some overlap between the last three.17 However, these are all very large

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regions, and do not help to identify the smaller regions used in regional analysis and policy. In the past, beer and football codes helped to define each state (as well as to measure the spread of Victorian influence into southern New South Wales), but now the national marketing of beer and the AFL (Australian Football League) has blurred these differences. Perhaps the nearest Australia has come to developing regional identities has been in the proposals for new states. The most persistent pressures for the creation of new states within the Federation have been in central and northern Queensland, and in the New England and Riverina areas of New South Wales. The secession movement in Western Australia in the early 1930s, which was supported by the majority of voters at a State referendum in 1933, was also a manifestation of regionalism. However, none of these political movements for greater regional autonomy have lasted, most dissipating when economic prosperity returned to the region.18 So in many parts of Australia homogeneous regions based on culture and regional identity are difficult to identify. On the other hand, regions based on the characteristics of their economic base are much easier to find, and this type of region is likely to be of particular relevance to economic development practitioners. Economic regions are not only identified by their economy, but also have populations, and social and political structures, that have been strongly influenced by this economy and its historical development. Regions dominated by tourism, such as Far North Queensland, for example, differ from manufacturing regions such as the Hunter Valley or mining regions such as the Pilbara in much more than their economic structure. Within the capital cities, on the other hand, regions may be determined not by production but by consumption, with differences based on wealth and lifestyle,19 as in the broad contrast between eastern and western Sydney. The second type of region is the functional region. These consist of areas that are integrated through the functional connections between the parts of the region. For example, cities and towns link together the areas for which they are marketing, processing, transport or service centres, into what is termed a ‘nodal region’ because it centres on a node or focal point.20 A particularly interesting example of a functional region is one defined by the linkages between its industries and firms, because such a region is a functioning unit within which are contained the majority of the backward linkages of the

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key industries, up to the stage of exporting the product. Analysis of these linkages may indicate ways to strengthen and develop the regional economy. Another type of functional region is the labour market region, the area within which people are willing to commute from their place of residence to their place of employment. According to the Organisation for Economic Co-operation and Development (OECD) the labour market region defined through commuting patterns is the most common functional region defined by its member countries, although in several nations these commuting patterns are delineated in relation to an urban centre.21 In such cases a labour market region is therefore also a nodal region. A water catchment could also be described as a functional region, as it combines areas that are integrated by flows of water, soil and pollutants. An important type of region, and one that could be considered as either homogeneous or functional, is that resulting from ‘the persistent, deep-seated importance of local, personal interaction with real people in familiar place settings in the formation of identity and a feeling of place-belonging’.22 In studies of rural South Australia extending over a quarter of a century, Smailes demonstrates the continuing importance of local communities, based on social, sporting, church and visiting networks and on people’s identification of the town they ‘belong to and feel most at home in’, even though over this period their shopping, services and business linkages expanded to cover a much wider region. In non-metropolitan areas these regions, whether the more local social regions or the wider shoppingbusiness regions, are important because they are based on people’s sense of identity and belonging, and can form the basis for mobilising support for regional development activities.23 A third type of region is the administrative region. These are the regions defined by their administrative or institutional boundaries, such as the States and Territories in Australia, or local government areas. A specialised type of administrative region is the planning region, an area delimited for the purposes of land-use and environmental planning. Western Australia, for example, has ten planning regions, which can be broken down into smaller and more manageable regions for the development of regional plans. The statistical areas of the Australian Bureau of Statistics are another type of administrative region and a particularly important one in that they determine the areas for which economic and social data are available.

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However, they could also be considered as functional regions, as outside the capital cities Statistical Divisions are defined on the basis of identifiable social and economic links within the region, as described later in this chapter. Importantly, many places in Australia sit within more than one administrative region and this may confound the development of a regional identity and complicate development initiatives. Some of the administrative regions for the town of Mudgee in NSW are shown in Figure 3.1 and the map demonstrates how a locality can find itself within regions of varying scale and direction. Figure 3.1 Administrative regions for Mudgee, NSW

200

0

200

400

Kilometres

Central Western ACC

Commonwealth Electoral District of Gwydir

Mudgee Council

Statistical Region

Orana RDB

State Electoral District of Upper Hunter

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Most of the types of regions described above have been created by economic, social and political processes, and therefore change over time as economies and societies change. Economic processes are perhaps fundamental in Australia, as cultural variation is weak. Consequently if the industry which historically defined a region declines, as in the case of the pastoral industry in the Kimberley in the Northern Territory, the identity and boundaries of the region may also change (see chapter 8). Economic change at the regional level may be the result of world market trends, but may also be the product of political ideologies, as the way in which the national economy is regulated or deregulated determines the nature and strength of economic growth processes at the regional level.24 Regions within cities that are based on wealth, consumption and lifestyle, and nonmetropolitan regions that are based on retirement, welfare-led or lifestyle migration (such as parts of coastal New South Wales and Queensland), are in turn the product of social and demographic changes and residential preferences. There is therefore nothing immutable about regions, and they may need to be redefined to keep them relevant to changing conditions. Furthermore, regions are social constructs. There is no objective set of regions out in the world waiting to be discovered. Instead, they are defined by people, communities and organisations for particular purposes;25 they result from our attempts to impose some spatial order on our surroundings. Regions can be of any size that suits the purpose for which they are being defined. Adelaide and its outlying dormitory suburbs, for example, could be considered as one urban region within South Australia, or as up to four or five different socioeconomic regions, differentiated principally by their economic structure and levels of income and education. National Economics, in their annual State of the Regions Report,26 divides Sydney into seven regions on the basis of their economic and social characteristics. These range from Global Sydney (centred on the central business district, the CBD) to Sydney Mid West (centred on Parramatta). In 2001 Global Sydney had an estimated per capita income available for consumption of $23 074 and an unemployment rate of 3.7 per cent, while Sydney Mid-West had a per capita income available for consumption of $13 583 and an unemployment rate of 10.2 per cent. In contrast, McManus and Yiftachel,27 rather than dividing Perth into separate regions, argue that the city no longer makes sense as a metropolitan area on its own, but is a component of a south-west of Western Australia region,

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stretching from halfway to Geraldton in the north, to Albany in the south. This wider region is linked to Perth through commuting, recreation, rural ‘retreaters’, environmental pressures and production linkages. Homogenous and administrative regions can be of almost any size, but functional regions need to be big enough to contain the functional linkages that identify them. For example, it is difficult to split cities into several functional regions, because all areas in cities have economic linkages with each other, and particularly with the central business district. The smaller the region, however, the greater the likelihood that ABS statistics will be unavailable (the ABS does not release data if individuals or firms might be identifiable), or based on too small a sample to be reliable, which limits the utility of small regions as a basis for economic development activities. We can also make use of a hierarchy of regions, with different sizes of regions being used for different functions. For example, a case can be made for regional development agencies to operate at two levels, with agencies for large regions dealing with industry development, regional infrastructure projects and large enterprises, and agencies for small regions assisting the business development of individual small and medium firms. This is the pattern in States like Western Australia, where Business Enterprise Centres and some local development agencies form the lower level and the Development Commissions the upper level of development agencies. However, this hierarchy is not the result of conscious planning or agreement between the levels, and the Business Enterprise Centres would probably object to being called the lower level.

EXAMPLES OF AUSTRALIAN REGIONAL C L A S S I F I C AT I O N S A number of Australian examples of regional classifications can be used to illustrate the varying types of regions, and the different purposes for which they are identified. The examples outlined below are the Standard Geographical Classification of the Australian Bureau of Statistics, which forms the framework for the publication of Australian statistics, the much more fluid and overlapping regions of the Australian Broadcasting Commission’s (ABC) regional radio network, the varying types of regions associated with regional development agencies, the regional framework used in the annual State of the Regions reports, and a set of regions produced to illustrate a proposal for regional government in Australia.

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T H E A U S T R A L I A N S T A N D A R D G E O G R A P H I C A L C L A S S I F I C AT I O N O F T H E A U S T R A L I A N B U R E A U O F S TAT I S T I C S

The most common starting point for grouping areas into regions is the Australian Bureau of Statistics’ Australian Standard Geographical Classification. The basic unit in this classification (apart from the Census Collection Districts which are useful for detailed analysis but too small for defining regions) is the Statistical Local Area (SLA), which tends to correspond to the boundaries of local government areas where these exist. Some local government areas constitute a single SLA, while others are split into two or more SLAs. SLAs are grouped into Statistical Subdivisions (SSDs), defined as ‘socially and economically homogeneous regions characterised by identifiable links between the inhabitants. Moreover, in the non-urban areas ... an SSD is characterised by identifiable links between the economic units within the region, under the unifying influence of one or more major towns or cities’.28 SSDs are in turn grouped into Statistical Divisions (SDs). SDs have been defined for each capital city to contain the anticipated growth of the city for a period of at least 20 years, while outside the capital cities an SD is defined in almost the same way as the smaller SSDs.29 At the 2001 census there are 1353 SLAs, 207 SSDs and 66 SDs covering the whole of Australia. Because this classification uses the concepts of homogeneous and nodal regions, coincides with local government boundaries, and groups areas according to both socioeconomic criteria and measures of interaction such as transport patterns, telephone traffic, retail shopping and media reach, it forms a ready-made framework for the delimitation of regions for a range of specific purposes. In some States and Territories the Statistical Divisions correspond to planning regions, but not always. ABC REGIONAL RADIO

ABC Radio communicates at three levels of radio space: national, State and regional. Regional radio is most strongly developed in Queensland, New South Wales and Western Australia, where regional stations typically have about five staff, and provide a blend of local, state and national content that varies with the region. There is likely to be a rural or resources reporter who contributes material on the local economy, and a local news reporter. In keeping with the greater degree of decentralisation of population in Queensland, the stations in centres like Townsville and Rockhampton are significantly larger,

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and contribute more content to other stations than is the case elsewhere. To be successful a regional radio station must have a good knowledge of its audience, and therefore be able to identify the area it serves and the interests of the people within that area. The stations and their radio spaces therefore correspond to a fair degree to recognisable regional ‘communities of interest’, and in some cases have been adjusted to take account of shifting regional identities, but financial constraints limit the ability of the ABC to cover all regions. Nevertheless, the radio regions that have been created provide a particularly interesting case of regionalisation in Australia.30 They are an example of a very flexible and overlapping set of regions, very different from those defined by the ABS. R E G I O N A L D E V E L O P M E N T AG E N C Y R E G I O N S

Most States and Territories in Australia have a number of regional development agencies. In some States these agencies have been formed through State government collaboration with local government, as in South Australia and Western Australia, and represent a formal regionalisation of the State. In Western Australia, for example, nine regions have been defined, each with its own Regional Development Commission. These regions are formed from groups of local government areas, and mostly match the ABS Statistical Divisions, but with a few deviations. They have the advantage that they are also the regions used by some other State Government departments and agencies, particularly the Planning Commission. They are large regions in area, although not in population, and some have sufficient size and internal variation to require the Commission to have up to four offices scattered across the region. Only two regions have a single office. They are mostly closer to planning regions than to functional or homogeneous regions. As in several other States, the Development Commission regions do not include the metropolitan area of Perth, in keeping with a widespread Australian view that regional development means non-metropolitan development. New South Wales has had a similar system of regions in place since 1972 for its Regional Development Boards, based on the State’s administrative and planning regions, which largely coincide with the ABS Statistical Divisions for the State. These two States therefore contrast with Queensland, where the community-based Regional Development Organisations are generally smaller, have been created by local governments, communities and business

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groups, are more likely to be functional regions focused on an urban centre, and do not form part of the Queensland Government’s administrative and planning regionalisation of the State.31 N AT I O N A L E C O N O M I C S ’ R E G I O N S

Each year National Economics produces a State of the Regions report for the Australian Local Government Association, and this contains perhaps the most comprehensive classification and delimitation of Australia’s economic regions. The latest report identifies six types of regions: 1.

Core metropolitan regions, which represent the central areas and sometimes the inner suburbs of the major cities.

2.

Dispersed metropolitan regions, which are predominantly residential suburban areas whose workforce commutes to employment in other regions.

3.

Industrial production regions, which are characterised by concentrations of manufacturing and include both metropolitan areas like Western Sydney and non-metropolitan areas like the Hunter and Illawarra in NSW, and the Geelong and Westernport regions adjacent to Melbourne.

4.

Lifestyle regions, which have environments which have attracted retirees, tourists, holidaymakers and people in the workforce choosing a non-metropolitan and coastal lifestyle. These are commonly termed ‘sea change’ regions after a popular TV series.

5. 6.

Rural-based regions, in which agriculture is the basic industry. Resource-based and remote regions, with economies based on minerals and energy, sometimes with the addition of pastoralism and tourism. Most of these regions have significant Aboriginal populations.32

The result is a regional classification that covers the whole of Australia, divides the major cities (which contain about 70 per cent of the national population) into three different types of economies, and the rest of the country into another three types. It provides an excellent base for broad analyses of regional conditions and trends, and each report contains a new set of economic and social data on the regions. However, many of the non-metropolitan regions are much bigger than even the Western Australian Development Commission regions, and are too big to provide a framework for regional development action. The regions also follow State boundaries, which makes for administrative convenience and matches the boundaries of political power and interest, but splits up a few functional economic regions that straddle State borders.

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R E G I O N S F O R R E G I O N A L G OV E R N M E N T

Several commentators have argued that regional development would be enhanced by the replacement of the present States with a regional level of government bigger than the existing local government units. Regional government at this level, it is claimed, would be more responsive to the particular development needs of each region, would facilitate the provision of the region-specific industry support programs advocated by the ‘new regionalism’, and counter the dominance of the capital cities. One proposal suggests 44 regions, with Sydney and Melbourne split into several areas, and Brisbane, Adelaide and Perth each forming one region.33

DEFINING AND DELIMITING REGIONS The examples above illustrate different types of regional delimitation designed for different purposes. There is no single best way of defining and delimiting regions, and the method used must be determined by the purpose for which regions are being defined. In Australia regions that are groupings of local government areas have the advantage of the availability of ABS and other statistics, which assists analysis of the economic and social conditions of the region and the monitoring of the region’s performance. Such regions also facilitate the involvement of local government, which is becoming an increasingly important actor in regional development. However, individual local government areas may be too small, particularly in the cities where they form only a part of the local labour market or the regional economy. Regions based on local government areas that stop at State borders, as is the case with State planning regions and ABS Statistical Divisions, can also split functional regions in half. Examples of this problem are the Green Triangle Region centred on Mount Gambier, which includes south-western Victoria and southeastern South Australia, and the Murray Valley, where functional regions spread across both New South Wales and Victoria. Regional development agencies in these areas should logically cover the whole of the economic region, but administrative and funding problems between States may make this difficult. A functional economic region is probably the most logical basis for regional economic development, because it maximises the number of activities important to the region’s development that will be contained within the region. However, it is difficult to create regional

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development agencies that do not coincide with administrative areas, particularly given the role of local government in local and regional development, so functional regions are created by grouping together several local government areas. The result may not be a perfect delimitation of the economic region, but it is likely to be administratively and politically easier to work with. Where regions are the basis for industry development it can be important to define them so as to include the main actors in this development. As noted earlier in this chapter, these include the main firm or firms in the target industry, their suppliers, their support services (including finance), vocational training institutions, research and development institutions, business associations and the relevant government agencies. However, in non-metropolitan Australia it is often difficult to find the full range of actors and agencies, as many of the important actors will be located in the major cities, and the role of the development agency may be to help local firms to overcome the absence of local suppliers, training institutions and specialised research and development institutions. Different methods may be used to identify regions in different areas. For example, the most thorough regionalisation of Australia so far undertaken selected nodal regions for the non-metropolitan areas and homogenous regions for the major cities.34 It was argued that regions based on interaction could not be identified in the large cities because these were functionally too complex, and that the important spatial differences within these cities were in the social and economic characteristics of their populations. Nodal regions in the non-metropolitan areas were identified by analysing telephone traffic, while homogenous regions in the metropolitan areas were identified on the basis of socioeconomic status, demographic characteristics, dwelling type and ethnicity. There have been several schemes in the past to delimit regions as part of a national regional planning or development initiative, but none of these have survived subsequent changes of government. During the 1940s the Commonwealth Department of Post-War Reconstruction, in collaboration with the States, started a program to plan and decentralise development on a regional basis, with the particular aim of promoting the settlement and development of sparsely populated areas. However, the States were responsible for defining regions within their jurisdiction, and they each used slightly different criteria. While 97 regions were delimited, the regional

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development program was abandoned when the Labor Government lost office in 1949. The Whitlam Labor Government of 1972–75 instituted a second national regionalisation exercise, with the aim of promoting decentralisation from the metropolitan centres. Within the metropolitan cities regions were defined on the basis of their homogeneity, grouping together areas with similar economic and social conditions. In non-metropolitan Australia functional regions were defined. ‘These regions were thought to be most appropriately focused on major urban centres, and their catchment areas would be defined in terms of road traffic flows, bus services, telephone traffic, newspaper circulation areas and patterns of retail sales’.35 However, the departure of the Labor Government in 1975 again led to the abandonment of this regional development program, making the regions redundant. Both the regionalisation exercises noted above were top–down exercises, in that the regions were delimited by government agencies rather than by communities, and they involved quantitative analysis of social and economic data rather than qualitative analysis of community opinions. During the 1990s regions were once again formed across Australia as part of the Federal Labor Government’s Regional Development Program,36 and a small number of these were defined through a process that included community consultation. For example, in the Murray Valley region of Victoria and New South Wales the process of region formation was managed by a local steering committee on which local government was strongly represented. As the guidelines specified that the geographic coverage of a region should be ‘appropriate for creating the links between activities needed for an export-oriented, growth-generating regional economic strategy’,37 the first step was to identify the main export industries and their production linkages. This was undertaken through a review of existing reports on the area, the analysis of statistics, holding community workshops, and interviews with key informants. A recommendation on the boundaries of two regions was then put to community meetings in four centres from Shepparton to Mildura, which led to a shift in the boundary between the western and eastern regions at the request of the community located on that boundary. The outcome of this process was to create two regions incorporating areas in both New South Wales and Victoria. The two regions had distinctive economies and distinctive water manage-

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ment problems, and were recognised by residents as different communities of interest. The cores of the two regions were defined by industry linkages, but the boundary between them was defined by community perceptions of which region they belonged to. This in turn was strongly based on social and service provision linkages of the type discussed earlier, not on industry linkages. The exercise produced regions that were smaller than the Commonwealth would have liked, with populations of around 90 000 in the western region and 150 000 in the eastern region, because this was the size of area that the communities felt able to work with. The communities also argued to exclude from their regions the city (Bendigo) that dominated their area, as local service provision within their regions was a major issue, and they feared that Bendigo would dominate the activities of the new regional development agencies if it were included.38 The regional development programs of the Labor Governments of the early 1990s actually created two sets of regions for two separate departments. The Department of Housing and Regional Development sponsored Regional Development Organisations (RDOs) across Australia, whose main purpose was to develop regional partnerships to promote the development of export-oriented industries, while the Department of Employment, Education, Training and Youth Affairs created Area Consultative Committees (ACCs) to advise on and support training and employment programs in the regions. Clearly the functions of these two regional bodies overlapped, and some States insisted that the boundaries of the two be rationalised in some way. However, many regions ended up with a State-based regional development agency, two Commonwealthsponsored agencies (an ACC and an RDO) and sometimes a local government-based economic development agency, all following different regional boundaries. This complex, frustrating and inefficient outcome was the result of the inability of Commonwealth, State and Territory governments, and even of ministers and departments in the same government, to co-operate for the benefit of regional communities. It is not surprising that one of the proposals to come out of the 1999 Regional Australia Summit was that all levels of government, and ATSIC, ‘accept joint responsibility to ensure that there is only one recognised regional forum for each regional community and that the body used is the best existing body serving its region’.39 So far nothing has come of this proposal.

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CONCLUSION Regions can be identified in different ways, at different scales, to suit different purposes. So does it matter how a region is defined and delimited? Regional development practitioners sometimes argue that regional development is produced by good leadership, and that good leaders can make any type of region work. There is some truth in this, but the task of a regional leader, and of a regional development agency, is likely to be made easier if the region groups together people, communities and businesses who can identify a common purpose and a reason for co-operating. Conversely, agencies whose regions have very diverse and unconnected economies can have difficulty deciding on their priorities and gaining widespread community support. Logical regions can be formed from: •

areas with similar industries (such as broadacre farming or tourism);

•

areas dependent on the same resource (such as irrigation water);

•

areas dependent on the same infrastructure (such as a port and the transport lines to it);

•

areas whose economies are part of the same dominant industry or industries (such as food processing or automobile manufacture);

•

areas with common problems (such as restructuring in manufacturing or agriculture); or

•

areas whose social, service or business linkages focus on the same town or city.

However, few if any parts of Australia can be neatly divided by any of these criteria into mutually exclusive regions which do not have commonalities with other regions. Neither is it possible to define regions which contain within them all of the significant linkages of their dominant industry or industries. While service linkages are predominantly regional, production linkages can be global, and in many regions the important industry linkages will be national and international rather than local.40 What is important, we believe, is to define regions within which business and community groups can perceive enough common interests and issues, even if they are ones on which there is disagreement, to encourage them to work together. The organisational structures for these regions should not be so rigid as to prevent areas within a region from sometimes linking with a neighbouring region with which they have a specific common interest.

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Neither should they prevent the boundaries of regions changing as regional economies develop and economic issues change. It also helps if there is agreement between the levels of government on a single regional body, and therefore region, to represent community and business interest in regional development. Ryan, reviewing the regional development experience of the Goulburn Valley in Victoria in which he had been involved, and where there had been a succession of relatively short-lived development organisations with different boundaries and different objectives, believes that the development of the region could have been better if there had been ‘clear identification of the region in terms of economic units and communities of influence — then put it on a map and stick to it’.41

4

A U S T R A L I A’ S D I V E R G I N G R E G I O N S : CAUSES, OUTCOMES AND POLICY CHALLENGES Recent decades have witnessed significant shifts across Australia in the spatial distribution of economic growth, socioeconomic status and lifestyle. We have seen the emergence of a new regional geography comprised of winners and losers. Debates on the pace, depth and reasons for these shifts have ricocheted through politics, academic research, policy development and the popular press. Often politicians and commentators have presented off-the-cuff explanations, perceiving these developments as either a gift or windfall arising out of government-led economic globalisation or as an unfortunate — and somewhat unexpected — outcome of economic restructuring and faceless international markets. Reality, however, defies such simplistic models. The increasing complexity of socioeconomic status, economic performance and demography within Australia at the State, regional and sub-regional levels is an outcome of known processes. Technology change and the global economy have played their part, government policies have been critical also.1 The increasing complexity of regions and regional outcomes is of central concern to regional and local economic development practitioners. An understanding of national and regional processes plays a critical role in informing the construction of regional strategies. In recent years some commentators have suggested the emergence of an Australian ‘rust belt’ and ‘sun belt’. Others have argued that inland and metropolitan Australia is giving way to an ascendant ‘coastal’ Australia. Some analysts have discussed Australia’s spatial restructuring in terms of ‘new’ or ‘informational’ economy activities; while others have called attention to the growth of regional economies based on resource and extractive industries. Local and regional

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economic development strategies need to be attuned to these processes. Capable economic development policies, practitioners and agencies can recognise the processes affecting their region, harness their potential and oversee the growth of those industries. Those that lack this ability to recognise and act upon the key drivers within their economy — both now and in prospect — pursue fruitless development alternatives.2 What then are the processes separating high growth and low growth regions? Are all rural regions locked in a downward spiral comprised of declining services, falling population and shrinking economic opportunities? Is the continued growth of Sydney inevitable? What role can national government policy play? How can policy applicable across the nation advance the welfare of individual regions?

W H AT S C A L E O F R E G I O N ? Any discussion of regional performance and outcomes is confronted by controversy and potential conflict over the nature and scale of regions. Attempts to define and characterise ‘regional spaces’ raise difficult issues of how and to what end a ‘region’ is constituted. These debates have been covered in the previous chapter but it is worth noting that depending on the purpose of analysis and the stakeholders involved the measurement of ‘regional performance’ can involve regions of varying scales and shapes. For example, a State government’s interest in measuring regional performance will result in a different formulation of ‘regions’, than that emanating from a local government association, an environmental organisation, or a private company. There is no single ‘correct’ classification schema for the analysis of regional structures and performance and there is no benefit to be gained in becoming bogged down in definitional issues. Such arguments neglect both the real needs of regional development practitioners and policy makers to examine the growth of their region against others on the one hand, and the importance of administratively determined regions on the other. This chapter proceeds by examining the structures and performance of the Australian States and Territories, then provides a critical review of regional analyses at smaller scales. It then moves on to assess key attributes of contemporary Australian regional restructuring and the ability of national — and even State — policies to meet the needs of all regions within their territory.

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S TAT E - L E V E L P E R F O R M A N C E The division of the Australian landmass into the various States and Territories reflects the historical prerogative of colonial London to draw lines on maps, over lands often unexplored by Europeans. Adelaide, Brisbane and Perth are situated in the extreme corners of their jurisdictions, potentially creating difficulties for the management and delivery of services, and the extent to which some citizens may feel ‘connected’ to their State administrations. Residents in North Queensland and the Kimberley frequently bemoan the distance to their State capitals and the alleged neglect or lack of understanding of their region by State bureaucracies, whereas those of western NSW complain of a ‘sandstone curtain’ that supposedly blinkers Sydney policy makers and politicians to their needs. There are strong arguments that Australia’s State borders do not provide the optimal set of administrative and political divisions within the nation, yet any change to current borders seems difficult to envisage given the intractability of current arrangements and the probable impossibility of generating a consensus on the preferred nature of changes. Notwithstanding these arguments, economic and social data tend to be collected at the State or Territory level, and this is the most common scale at which regional comparisons are made. Table 4.1 summarises the contributions of each State and Territory to Australia’s population and gross domestic product (GDP). Several points are apparent from these data. First, there are divisions between the States/Territories that have increased their share of the Australian population and economy (Queensland and Western Australia); those that have increased their economic shares in the context of declining or static population shares (New South Wales and the two Territories); and those that have experienced relative decline in both population and gross product (Victoria, South Australia, and Tasmania). Second, comparing the contribution of population and gross product for each State and Territory reveals significant variations in per capita gross product. In 2000–01, New South Wales, Victoria, Western Australia, and the two Territories made higher contributions to Australia’s GDP than their population shares would suggest, suggesting relatively high levels of per capita gross product. The opposite was true for South Australia, Queensland and Tasmania. These differences are highlighted in Figure 4.1, which tracks per capita gross State product over the 1990s. The three States above the national average (that is, above

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100) have exhibited increased per capita gross State product levels over this period, whereas per capita gross State product levels in South Australia, Queensland and Tasmania have declined.3 Table 4.1 State and Territory contributions to Australia’s population and economy, 1990–91 and 2000–01 Population, Percentage of Australian Total 1990–91 2000–01 New South Wales 34.1 33.7 Victoria 25.5 24.9 Queensland 17.2 18.7 South Australia 8.4 7.7 Western Australia 9.5 9.9 Tasmania 2.7 2.4 Northern Territory 1.0 1.0 Australian Capital Territory 1.7 1.6

Gross State Product, Percentage of Australian Total GDP 1990–91 2000–01 35.2 35.6 27.2 25.6 15.0 16.3 7.5 6.4 10.0 11.1 2.1 1.7 1.1 1.3 1.9 2.0

Figure 4.1 Per capita gross State product, 1992–93 to 2000–01, six States

SOURCES

Gross State product ABS 5220.0, table 4.

Variation in relative per capita gross product among the States raises important questions about regional performance. During the early 1990s the ‘sun belt–rust belt’ dichotomy proved popular in the media as a basis to describe State performance. This term entered the Australian lexicon from the United States, where it was used as a

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broad descriptor of an emerging dichotomy between fast-growing economies in the south and west and slow-growing economies in the north and east. This slogan, like many such labels, conflated quite complex trends because the ‘sun belt’ was comprised of a mix of regional circumstances including the ‘new south’ economies of Georgia and the Carolinas, the ‘retirement belt’ economies of Florida and Arizona, and California, with its own mix of growth industries. Similarly, the north included slower-growth northern manufacturing states such as Ohio, Pennsylvania, Illinois, and Michigan but the economies of places such as Massachusetts and New York boomed. The term gained traction in the 1980s and early 1990s in Australia because of higher rates of unemployment and job losses in the southern states, as well as the pronounced loss of population to other parts of Australia. This image was reaffirmed in the early 1990s when the State governments of Victoria, South Australia and Tasmania all confronted fiscal crises. Victoria, South Australia and Tasmania fared the worst during the recession of 1991–92, as a result of the higher exposure to manufacturing, combined with the spectacular collapse of State-based financial institutions. Banking sector bailouts in Victoria (Pyramid Building Society, Tricontinental, State Bank of Victoria) and South Australia (Bank SA) cut deep swathes into the budgets of State governments, forcing expenditure cuts during the first half of the decade. In Tasmania, the State budgetary position deteriorated rapidly between 1989–91, necessitating a round of State tax increases and expenditure cuts. Contrasting with this, Queensland experienced relatively buoyant economic conditions over this period as strong net in-migration from the southern states boosted local demand, giving rise to the argument that, as a ‘sun belt’ economy, it was cushioned from economic downturns.4 Yet as the 1990s progressed, the ‘rust belt–sun belt’ model seemed less generally applicable to the Australian situation. Socioeconomic and demographic restructuring at the State and Territory level has been characterised by a set of processes more diverse than suggested by the ‘rust belt–sun belt’ dichotomy. For its part, Victoria by the mid-1990s was recovering strongly. Encouraged by capital works spending, Melbourne’s economy had made a significant recovery. Although Sydney remained the nation’s chief location for corporate and financial sector functions, Melbourne re-asserted its role in the mid-1990s. Published research during this period sug-

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gested that the severity of Victoria’s early 1990s economic downturn rested pre-eminently on cyclical rather than structural factors.5 At the same time, the mid-1990s saw Queensland’s growth rate falter. Whereas in the early 1990s Queensland was attracting net interstate migration of 55 000 persons annually, by the middle of the decade this had fallen to about 30 000 and, in the four years to 2000–01, the State received annual average net migration flows of just 18 500.6 Between 1991 and 1996 Queensland’s share of the national population increased from 17.1 per cent to 18.8 per cent; but from 1996 to 2000 fell slightly to 18.7 per cent.7 During the decade questions were raised over the State’s capacity to service high population growth, in the context of low public sector spending when compared to the national average.8 These factors underline the reality that much of Queensland’s population growth during this era has been linked to retirees and persons escaping higher living costs in Sydney and Melbourne. Throughout this period Bob Stimson of the University of Queensland questioned the sustainability of a settler economy in South-East Queensland where newly arrived migrants constituted the only ‘export’ market for the region’s product, and where many arrivals proceeded immediately to Federallyprovided income support. As illustrated in Figure 4.1, Queensland’s per capita gross State product is well below the national average and actually declined during the 1990s. In Queensland, relatively strong population growth was not matched by an equally strong economic performance. The indeterminate position of NSW and WA has also compromised the applicability of the ‘rust belt–sun belt’ model in Australia. NSW experienced a dramatic fall in manufacturing employment in the period leading to the 1990s recession, giving it elements of a supposed ‘rust belt’ economy. In the two decades to 1991, Sydney’s manufacturing sector shed 140 000 jobs, compared to 100 000 in Melbourne.9 The relative decline of Sydney’s manufacturing base accelerated from the mid-1980s, with 41 000 jobs lost in the decade 1986–96, compared to just 8400 in Melbourne.10 Yet these job losses were more than compensated by strong growth in the services sector and, importantly, through the expansion of high paying corporate headquarters and finance sector employment. In 1999 nearly half (45.2 per cent) of Australia and New Zealand’s top 500 companies were headquartered in New South Wales, and Sydney hosted the headquarters of 76 per cent of Australian banks.11 The clustering of these activities in what has been labelled ‘Global Sydney’ (see below)

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raised incomes and living costs in Sydney. Using a benchmark definition of a high income household as one with an annual income of $78 000 or greater, Sydney’s incidence of high-income households significantly exceeds those of the other capitals, and is approximately twice as high as in Adelaide (Figure 4.2). This wealth breeds higher property prices. The top 25 per cent of Sydney’s houses rose in price by about 80 per cent from 1993-98, a rate of increase far exceeding that in any other capital.12 In 2001, there were 3800 Sydney residential properties sold for over $1 million, compared with 458 in Melbourne.13 As of April 2002, the highest price paid for a house in Sydney was $28.5 million (‘Altona’, in Point Piper, purchased in 2002) and the highest price paid for an apartment was $13.9 million (for an apartment in ‘Bennelong’, otherwise nicknamed ‘The Toaster’, Macquarie Street, purchased in 1998). The twin effects of Sydney’s internationalisation and higher living costs have encouraged strong international migration inflows but net interstate outflows. During the six years to 2000–01, NSW (mainly Sydney) benefited from the arrival of an average of 40 645 international migrants each year, but during this same period the State suffered from the net loss of an average of 14 488 NSW residents per year to other states.14 These migration flows have impacted noticeably on Sydney’s urban fabric, with certain parts of the city being magnets for particular migrant groups. Decisions to allow medium density apartment complexes adjacent to suburban railway stations have encouraged high population concentrations of non-Australian born residents in key suburban localities including Chatswood, Ashfield, Hurstville, Strathfield and the traditional Indo-Chinese area of Cabramatta. According to the 2001 Census, the percentage of residents who spoke a language other than English at home was 59.8 per cent in the Canterbury–Bankstown statistical sub-division, and 61.2 per cent in the Liverpool–Fairfield statistical sub-division.15 WA’s position is also difficult to pigeonhole within the ‘rust belt–sun belt’ dichotomy. In terms of economic and population growth, WA was the ‘star performer’ among the states over the 1990s (see Table 4.1). Growth however has come from a relatively limited base in the mining sector. Between 1992–93 and 2000–01, the contribution of mining to the State’s economy rose from 17.4 per cent to 23.1 per cent.16 The structural characteristics of this sector impinge upon the State’s broader economic base. As discussed in Chapter 5, the mining sector tends to be associated with limited

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Figure 4.2 Proportion of households with incomes of $78 000 or over (in 1996 dollars) five mainland capitals

SOURCE

Lloyd et al 2000, p 283.

economic multipliers and weak connections at the regional scale. Wages and salaries account for a relatively small element of the sector’s economic activities, reducing its capacity to act as a generator of jobs. In 2000–01 in WA, the mining sector’s wages and salaries payments accounted for just 13.9 per cent of total factor income,17 compared with a State average of 45.9 per cent of total factor income paid as wages and salaries.18 Because of the importance of minerals to the WA economy, if anything it is better described as a ‘rock belt’ rather than a ‘sun belt’ economy. This leaves Tasmania and South Australia. Both have exhibited below-national average rates of economic and population growth during the past two decades, and Tasmania hasn’t grown at a rate above the Australian average since the 1930s. In South Australia during the 1990s the State Government embarked on a series of controversial policies to kick-start growth, including the privatisation and contracting out of government services on a massive scale and the widespread use of industry subsidies to attract investors. The impacts of these initiatives are contested widely. Meanwhile, the State’s traditional manufacturing base remains under significant pressures. Strong growth in SA manufacturing real output has not been translated into increased employment, because of the shift towards

AUSTRALIA’S DIVERGING REGIONS

• 65

capital intensity.19 Debate on the future of the car industry dominates broader questions on the SA manufacturing sector. Moreover, although there has been robust expansion in some of the State’s agro-industries during the past decade (particularly wine and aquaculture), the SA agricultural sector as a whole has not exhibited significant growth. As detailed in Table 4.2, the net incomes of SA farmers grew in the mid-1990s before falling to levels broadly in line with those earlier in the decade. This contrasts with the generally stronger growth performance of agriculture in NSW, Victoria, Tasmania and Queensland. These economic factors have contributed to relatively low population growth in the State. South Australia has faced difficulties attracting international migrants and has experienced net interstate population losses. Since 1973, SA’s share of the national immigration intake has been lower than its share of national population.20 In 2000–01, only 3602 international immigrants arrived in SA, just 3.3 per cent of the national total.21 During the same year, net interstate migration flows saw SA lose 4234 persons. These trends are contributing to a rapid ageing of SA’s population. The ageing population combined with generally slower employment growth results in the State having generally poorer labour market conditions — as reflected in unemployment rates, vacancies advertised and wages — compared with the national average. In January 2002, only 38.9 per cent of SA’s civilian population over 15 was employed full-time, compared with 43.0 per cent nationally and 43.5 per cent in NSW.22 Table 4.2 Agricultural income, by State, current prices ($m) 1992–93 to 2000–01 NSW 1992–93 1993–94 1994–95 1995–96 1996–97 1997–98 1998–99 1999–00 2000–01 SOURCE

487 569 –231 858 1685 672 720 2253 1424

ABS 5220.0 (2001).23

Victoria Queensland South Australia 1442 662 417 1743 809 566 1037 660 433 2122 755 983 1826 513 738 1625 438 908 1725 1222 738 1263 497 764 2358 1315 403

Western Australia 532 602 720 1345 925 876 267 156 624

Tasmania 34 102 63 70 114 103 165 156 160

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

Tasmania faces an uncertain future. The State possesses an ageing population, net interstate migration loss and relatively few international migrant arrivals. Tasmania is unique amongst the States and Territories in that during the second half of the 1990s its population fell. In 1995–96 the State’s population was 474 443, but in 2000–01 it was only 470 272.24 Moreover, despite strong growth in certain parts of its economy, notably agro-food processing, Tasmania’s per capita State product is well below the mainland (Table 4.1). Over time, the island State has seen an erosion of office and decision-making activities, as firms and public sector agencies have rationalised these functions and administered Tasmania from Melbourne. All of Tasmania’s key urban areas have experienced declining national status over recent decades. Between 1961 and 1996, Hobart moved from the eighth to the 11th largest city in Australia, Launceston moved from tenth to 17th, and Devonport moved from 48th to 50th.25 It is important to recognise that these State-scale changes to incomes, population and economic activity within Australia represent the outcomes of interconnections between both market processes and government activities. Australia is a Federation and, as such, one of its central pillars is the notion that all citizens should have an equal opportunity to gain access to certain services and amenities. Whereas this pillar has never been implemented to its full and proper extent (a fact pointed out by successive Aboriginal and Torres Strait Islander Social Justice Commissioners), nevertheless it has required the Federation to develop compensatory mechanisms to assist the poorer States and Territories. As the body charged with making recommendations to this end, the Commonwealth Grants Commission (CGC) attempts to calculate the relative revenue raising and expenditure capabilities of each State and Territory. As illustrated in Table 4.3, the CGC has argued that each of the States and Territories require differing amounts of assistance per person if there is to be potential equity in service delivery across Australia. In 2001–02 the CGC recommended that to equalise service delivery capabilities across the nation, for every dollar per person provided to the Victorian Government in Financial Assistance Grants, the Tasmanian Government should be provided with A$2.099 per person and the Northern Territory Government should be provided with A$6.256 per person. The major beneficiaries of this process have been States and Territories with smaller populations and greater service delivery difficulties (‘disabilities’, in the CGC’s terminology). Significant shifts in relativities among the States and Territories over the past

AUSTRALIA’S DIVERGING REGIONS

• 67

decade are also apparent in Table 4.3. Critically, the CGC has recommended lower relative per capita funding provision to Western Australia and Queensland, and significantly higher relative funding to Tasmania and the Northern Territory. Increased recommendations to Tasmania relate to ongoing economic problems in the island State, whereas the higher amounts recommended for the Northern Territory relate mainly to enhanced recognition by the CGC of the funding needs of remote Aboriginal communities. The precise way that the CGC makes its recommendations is locked within labyrinthine financial mechanics, not well understood outside of the CGC itself. Of course, given that these calculations potentially influence the allocations of millions of dollars in Commonwealth funding, States and Territories continually lobby the CGC for changes in funding methodology. In the late 1990s, the NSW and Victorian Governments launched a public campaign for changes to the CGC’s financial calculations, challenging the traditional ‘gentleman’s club’ approach to these issues and foreshadowing the emergence of more robust, public debate on State-government funding in the twenty-first century. Table 4.3 Per capita financial assistance grant relativities, States and Territories,Victoria equals 1.000 New South Wales Victoria Queensland Western Australia South Australia Tasmania Northern Territory

1991–92 1.015 1.000 1.335 1.408 1.526 1.731 5.673

2001–02 1.031 1.000 1.246 1.110 1.547 2.099 6.256

SOURCES 1991–92 from Walmsley and Weinand (1997: 264)26; 2001–02 from Commonwealth Grants Commission (2002) State Revenue Sharing Update, CGC, Canberra, p 17.

The ACT is excluded because it was not fully incorporated into the CGC framework in 1991–92.

NOTE

I N C R E A S I N G P O L A R I S AT I O N , I N C R E A S I N G D I F F E R E N T I AT I O N The structure and performance of regions across Australia cannot be explained by analysis looking solely at the State/Territory-scale, or by employing crude dichotomies such as ‘rust belts’ or ‘sun belts’. Analysis of this issue requires an appreciation of the complex character

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

of spatial difference and performance within the nation, and the multi-faceted roots that give rise to these outcomes. Evidence of widening spatial inequality within the nation attracted media, academic and policy attention during the 1990s. Robert Gregory and Boyd Hunter analysed census data from the early 1970s to early 1990s to reveal a profound deepening of locational disadvantage at the scale of Census Collector Districts (CCDs) within Australian cities. CCDs are the smallest spatial unit at which Census data is collected, usually encompassing 200 to 300 dwellings. They used principal components analysis to measure and rank socioeconomic wellbeing within CCDs over this extended period. Gregory and Hunter were able to document a significant decline in socioeconomic wellbeing within the poorest CCDs, and the opposite in the wealthiest precincts. They concluded: the forces making for increased income inequality across households exert a strong and systematic neighbourhood effect. These forces have either impacted upon individuals, according to the neighbourhood in which they live, and/or there is a geographic sorting process at work so that households which lose income are moving to poor neighbourhoods and households which gain income are moving to high income neighbourhoods.27 Gregory and Hunter’s findings expose a critically important element of contemporary Australian (urban) change, but leave unanswered the question of ‘where’ these shifts are taking place. In the late 1990s considerable geographical research was undertaken to clarify this issue. Studies have reported a range of factors influencing socio-spatial differentiation. According to two researchers: no one State and no one type of region dominates the ‘winners’ or the ‘losers’. Rather, the pattern is one of increasing differentiation with the overall pattern.28 This begs the question of how spatial differentiation is best measured within contemporary Australia. The array of data and analysis contained within the annual State of the Regions reports means they are of great benefit to regional development practitioners. As noted in Chapter 3, there are six categories of region covered within these reports and the considerable

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AUSTRALIA’S DIVERGING REGIONS

attention given to the issue of what constitutes regions and regional categories raises important conceptual questions about Australia’s spatial restructuring. Because the authors of the State of the Regions report define regions and the size of regions flexibly, the report can move beyond a ‘one size fits all’ mentality and hence can identify and highlight particular trends. At the same time however, this flexibility also means that the approach is dogged by questions over regional definitions, boundaries, and the comparability of data concerning regions of differing scales. The smallest region in the 2001 State of the Regions report, ‘SA South-East’, possessed a population (62 794) less than 5 per cent of the largest region (‘Sydney Mid-West’, with a population of 1 299 441). As the report’s authors have acknowledged in successive editions of The State of the Regions, questions remain concerning where boundaries should be drawn, and into what categories regions should be classified.

473 582 394 703 569

230 793 109 438 499

Gross regional product, per person employed, 2001 ($)

Production regions Adelaide Plains NSW Hunter NSW Illawarra Melbourne North Melbourne West

Wages/salaries per capita, 2001

Core metropolitan areas ACT 313 520 Adelaide Central 374 449 Brisbane City 900 042 Melbourne Inner 304 254 Perth Central 428 697 Global Sydney 694 086 Sydney Inner West 227 564 Tasmania South 229 014 Darwin 108 255 Total 3 579 881

5.5 8.9 8.4 7.3 8.7 3.7 3.5 16.6 12.0 7.5

27 348 16 470 17 584 25 174 18 835 26 523 25 702 12 222 23 270 21 196

62 090 63 594 59 599 77 748 59 050 87 396 76 047 51 660 59 526 ——

15.8 13.7 12.2 10.5 11.7

12 16 15 16 16

57 59 59 59 58

Unemployment rate, 2001

Population, 2001

Table 4.4 State of the Regions regional categories and key indicators, 2001

064 674 875 090 940

167 550 776 074 300

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

Qld West Moreton Sydney Mid-West Vic Barwon Melbourne Westernport Total

180 525 1 299 441 252 886 749 800 5 205 721

12.1 10.2 12.7 9.6 11.5

13 646 15 489 14 989 16 515 14 576

47 705 58 178 52 833 52 094 ——

359 294 288 272 835 590 353 650 432 662 527 691 296 620 631 521 232 278 316 392 434 514 708 484

10.3 11.9 5.0 6.2 7.7 8.7 11.7 2.2 8.1 7.3 4.4 6.7

14 207 13 825 22 105 20 369 15 786 15 982 14 338 28 079 18 274 19 241 21 107 19 436

53 463 46 305 64 096 65 356 48 161 55 631 53 144 81 520 51 864 55 566 70 621 ——

227 532 756 347 243 082 212 895 275 964 185 443 1 901 263

13.6 12.6 16.0 21.3 21.3 12.8 15.1

11 631 14 117 12 356 9 884 9 496 11 878 12 232

48 567 44 423 40 754 40 061 41 014 49 156 ——

Rural-based and remote regions NSW Central West 174 174 NSW Far & NW 141 275 NSW Murray 110 671 NSW Murrumbidgee 149 549 NSW North 173 810 Qld Agric SW 204 588 Qld Wide Bay-Burnett 237 337 Qld North 203 075 Qld Mackay 129 129 SA Eyre & Yorke 164 043 SA Murraylands 68 270 SA South-East 62 794 Tasmania North 108 022

11.8 13.8 9.8 8.7 13.2 9.5 20.8 12.3 9.5 16.7 10.7 7.9 15.1

14 13 15 16 13 14 9 13 18 10 13 15 10

51 52 51 52 55 46 40 56 60 57 55 51 53

Dispersed metro regions Outer Adelaide Brisbane North Melbourne East Melbourne South Perth Outer North Perth Outer South NSW Cent. Coast Sydney Outer N Sydney Outer SW Sydney Outer W Sydney South Total 4 Lifestyle regions Qld Far North Qld Gold Coast Qld Sunshine Coast NSW Rich-Tweed NSW Mid-Nth Coast NSW South-East Total

049 387 604 304 887 819 257 502 567 869 798 314 886

674 470 997 354 224 790 707 592 509 532 471 538 394

AUSTRALIA’S DIVERGING REGIONS

• 71

Tasmania NW Vic Central Highlands Vic Goulburn Vic Loddon Vic Mallee-Wimmera Vic West Vic Ovens-Hume Vic Gippsland WA Wheatbelt-Great Sthn Total 3

133 004 139 303 189 912 163 265 139 905 98 463 91 611 235 257 125 940 243 397

19.2 11.2 10.7 13.2 9.5 9.9 9.0 15.7 9.3 12.4

11 530 16 426 15 428 13 129 16 195 16 458 15 412 12 791 14 187 13 912

47 968 47 792 48 041 46 698 49 018 48 511 47 718 53 209 59 105 ——

Resource regions NT Lingiari WA Pilbara-Kimberley WA Gascoyne-Goldfields WA Peel-South West Queensland Fitzroy Queensland Pastoral Queensland North West Total

89 416 71 282 119 955 203 620 182 534 37 887 35 950 740 644

25.6 10.3 9.3 10.4 10.1 6.1 9.8 11.5

16 345 17 222 15 232 14 709 16 312 17 736 16 302 15 844

54 842 73 055 63 276 57 883 66 012 52 070 66 628 ——

SOURCE

NE/ALGA (2001: A.52-115).29

Table 4.4 provides summary data from the 2001 edition of the State of the Regions report. This table contains a wealth of data, which are analysed in the following sections of this chapter. For the moment, however, it is important to note that significant differences exist both between and within each regional category. Analysis of aggregate information for each main regional category thus may disguise substantial variation at lower scales. This underlines the argument in the previous chapter and referred to at the outset of this chapter, that regional analysis is linked ultimately to socially constructed notions of what constitutes a region and regional difference. The regional categories utilised in the State of the Regions reports must be treated with care. The significant variation across and within the regional categories in Table 4.4 points to the need for an in depth analysis of Australian regional restructuring. An appreciation of this requirement is apparent in the ‘communities of opportunity/vulnerability’ research of Stimson, Baum, O’Connor and Mullins.30 Unlike the State of the Regions, this project has used a standard spatial unit, Statistical Local Areas (SLA), to measure and assess Australian spatial differentiation.

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Employing a multi-variate model, the researchers assessed and ranked each of Australia’s non-metropolitan SLAs, with the objective of positioning these within a continuum of ‘opportunity/vulnerability’. The research by Stimson et al highlights a different set of outcomes compared with the State of the Regions reports, which tend to have an encyclopaedic and descriptive focus. According to Stimson et al: Fundamental to our hypothesis of what constitutes community opportunity and vulnerability is the notion that, at a macro societal level, processes of globalisation and economic restructuring have been generating marked and substantial shifts in the mix of industry sectors — a shift from the manufacturing and agricultural processes of the Fordist economy to the services and informational growth industries of the post-Fordist economy. Places of opportunity we see to be more likely to be positively adjusting to this change, while places of vulnerability are more likely not adjusting to this change.31 By analysing shifts in key variables, four ‘opportunity clusters’ (‘hot spots’) and three ‘vulnerability clusters’ (‘cold spots’) were identified by Stimson et al across the nation (Table 4.5). Table 4.5 Opportunity and vulnerability clusters Mining-based opportunity cluster Tourism-based opportunity cluster Service-based opportunity cluster

Extractive/ transformative-based opportunity cluster Welfare/retirement migration vulnerable cluster

WA: Kalgoorlie/Boulder, Port Hedland, Rosebourne; Qld: Mount Isa; NSW: Singleton. NSW: Snowy River;Vic: Alpine-East;WA: Broome; Qld: Cairns; Port Douglas/Mossman NSW: Bathurst-Orange, Armidale, Goulburn, Queanbeyan, Tamworth, Albury, Dubbo,Wagga Wagga; SA: Mt Gambier; Tas:W Tamar;Vic: Ararat, Baw Baw W Campaspe-Echuca, Portland, Horsham, La Trobe-Traralgon, Mildura, Mitchell N,Wangaratta-Central,Warrnambool,Wellington-Maffra, Wellington-Sale, Ballarat, Colac, Greater Bendigo, Greater Shepparton,Wodonga, Indigo-Beechworth, Macedon Ranges; NT: Alice Springs, Darwin; Qld: Kingaroy, Thuringowa,Toowoomba,Townsville NSW: Griffith-Leeton, Maitland, Muswellbrook;Vic: Mitchell-Sth;WA: Busselton, Harvey, Manjimup, Bunbury, Esperance; Qld: Hinchinbrook,Whitsunday, Mackay, Gladstone, Burdekin. NSW: Ballina, Bellingen, Byron Bay, Coffs Harbour, Eurobodalla, Great Lakes, Hastings, Kempsey, Lismore, Maclean, Nambucca; Qld: Livingstone, Hervey Bay

AUSTRALIA’S DIVERGING REGIONS

Extractive-based marginal cluster

Manufacturing-based vulnerable cluster

SOURCE

• 73

NSW: Bega Valley, Cowra, Forbes, Gunnedah, Moree Plains, Mudgee, Narrabri, Parkes,Tumut,Young,Taree; SA: Murray Bridge;Tas: Huon Valley, Meander Valley;Vic: Campaspe-Kyabram, Gannawarra, Moira-W, Moyne S, Sth Gippsland; Qld: Atherton, Bowen, Burnett, Mareeba, Johnstone. NSW: Broken Hill, Casino, Grafton, Inverell, Port Stephens; SA: Port Lincoln, Port Augusta, Port Pirie, Whyalla;WA: Geraldton, Albany;Tas: Burnie, Central Coast, Devonport,Waratah, Launceston;Vic: E Gippsland, La Trobe-Moe, La Trobe-Morwell; Qld: Gympie, Maryborough,Warwick, Bundaberg, Rockhampton

Stimson et al. (2001: 44 and 48).

Taken together, the State of the Regions reports and Stimson et al’s research on ‘hot spots’ and ‘cold spots’ provides a comprehensive assessment of Australian regional restructuring. The remainder of this chapter uses insights from these research projects and other sources to identify and assess key themes.

T H E R O L E S O F C A P I TA L C I T Y A N D N O N - M E T R O P O L I TA N R E G I O N S ACROSS AUSTRALIA Much recent political debate on regional issues has focused on perceived differences between the economic performance of the State capitals and that of non-metropolitan Australia. Prompted by electoral instability beyond the metropolitan cores, a range of commentators has asserted the existence of a widening income differential between ‘the cities’ and ‘the bush’.32 The proportion of Australians living in rural areas has been falling for the past century. In 1911, 43 per cent of the population lived in rural areas. This had fallen to 14 per cent by 1976, before stabilising in the past 25 years.33 Considerable debate surrounds the reasons for recent rural population trends. The demographic consultant Bernard Salt has pointed to a growth in coastal populations as the key driver of recent population trends, but some researchers have questioned Salt’s use of data and assumptions.34 Thinking of the nation’s uneven geography in the simple terms of an urban/rural dichotomy has little merit. This dichotomy fails to take into account the significant differences that exist both within metropolitan areas and within rural and regional Australia. Examining changes in the

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

inter-census period 1991 to 1996, regional economists at NATSEM (the National Centre for Social and Economic modelling) concluded: ‘there is a large and growing gap between the incomes of those Australians living in the capital cities and those living in the rest of Australia. However, regional Australia is not uniformly disadvantaged and not uniformly declining’.35 One of the main planks on which the researchers base this conclusion is the finding that growth in real average income per household varied considerably among different components of non-capital city Australia over 1991–96. As indicated in Table 4.6, whereas households in major urban areas (defined as regional cities with populations above 100 000) experienced negligible growth in real incomes over this period, rural households experienced relatively rapid real income growth. Table 4.6 Estimated real growth in household incomes, 1991 to 1996, by regional types Settlement Size Capital cities Major urban areas (non-capital cities with populations over 100 000) Regional towns (urban areas with a population of 1000 to 99 999) Rural towns (localities with a population of 200 to 999) Rural areas (localities with fewer than 199 persons) SOURCE

Per cent 1.99 0.26 1.14 0.99 3.35

Lloyd et al. (2000: p 275).

Y U P P I E B E LT S The ‘yuppie belts’ that surround the core of Australia’s capital city Central Business Districts are the first of five types of region we investigate. The State of the Regions reports highlight the importance of ‘core metropolitan areas’ for national wealth creation. Core metropolitan regions tend to have relatively low unemployment rates and high per capita incomes. In 2001, the four regions with the highest level of gross product per employee in the nation are ‘Global Sydney’ ($87 396), ‘Sydney Outer North’ ($81 520), ‘Inner Melbourne’ ($77 748) and ‘Sydney Inner West’ ($76 047). In all the capitals, residential areas adjacent to CBDs have experienced gentrification (Table 4.7). Viewed purely in demographic terms, these developments are far from being the most significant set of changes in Australia over recent years. In the decade 1986–96, the

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• 75

inner areas of the capitals accounted for only 2.3 per cent of Australia’s population growth.36 Between 1998 and 2001, the estimated populations of ‘Global Sydney’ and ‘Melbourne Inner’ grew by 24 100 and 22 000 respectively; much less than some ‘lifestyle’ regions such as the Gold Coast (51 600) and some outer suburban regions such as ‘Melbourne West’ (29 900). The importance of these developments however rests not with their numerical size, but their impact on the urban fabrics of Australia’s key cities. In Sydney, the term ‘professional over-class’ has been employed by the media to describe this emerging elite.37 Gentrification, which in the 1970s and 1980s referred to the process whereby the middle classes renovated older housing stock in inner urban areas, underwent changes in scale and dimension during the 1990s. In addition to this form of gentrification, developers mobilised large sums of money for the development of new apartment complexes, either from disused industrial (brownfield) or vacant (greenfield) sites. Construction of these complexes has boosted population densities, previously in decline from lower rates of household occupancy. Gentrification theorists have created the label ‘super-gentrification’ to describe this second, more extensive phase of gentrification, taking place in the 1990s.38 Table 4.7 Comparison of Australian inner urban regions, 2001 Global Adelaide Brisbane Melbourne Perth Sydney Central City Inner Central Average annualised 1.2 0.5 2.0 2.5 0.7 population growth 1998–2001 Wages/salaries, 7.8 3.9 5.9 10.6 7.8 per annum growth (%) Net property 8.7 8.3 8.3 8.7 9.1 income, per annum growth (%) Gross regional $87 396 $63 594 $59 599 $77 748 $59 050 product, per person employed ‘Global workers’/100 90 80 83 99 76 Growth in number 26.2 19.1 29.1 52.6 31.1 of building approvals per capita, 1998–2001 (%) High income 51.9 30.2 27.7 52.5 41.0 families (% of total) SOURCE

NE/ALGA (2001: A.63, A.74, A.96, A.97, A.107).

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

R E G I O N S W I T H O U T WO R K A counterpoint to the clustering of wealth and economic opportunity in Australia’s inner urban areas is the emergence of significant regions with low employment levels and high reliance on transfer payments. These characteristics are seen most readily in coastal areas (dubbed ‘lifestyle regions’ in State of the Regions reports) but are also evident in some older industrial regions (such as the La Trobe Valley, east of Melbourne). Relatively poor labour market outcomes in these areas can be the product both of (i) disappearing jobs in traditional (manufacturing and resource-processing) sectors, and (ii) sustained population growth not linked to labour market demand. These regions characteristically display high unemployment rates (see Table 4.8), although for demographic/economic reasons this measure might actually understate the extent of their labour force problems. Significant numbers of retirees reduce the size of the potential working population (increasing regional employment dependency ratios), whereas weak labour markets induce potential labour market participants (such as single parents) to opt out of the search for jobs (reducing the labour force participation rate). Thus, a region such as Richmond–Tweed, on the North Coast of NSW, not only has a relatively high unemployment rate (21.3 per cent), but also has a low labour force to population ratio (42.8 per cent).39 These themes are drawn together in Table 4.8, which measures the reliance on transfer payments by different Australian regions. Across the nation, 16.9 per cent of net disposable income (that is, total households’ incomes net of taxation) was derived from transfer payments in 1996. Dependency on transfer payments, however, varies significantly on a regional basis. In general, there is a lesser reliance on transfer payments in the capital cities, and a higher reliance in rural and regional towns. The ratio of transfer payment dependency is particularly high in Tasmania, where 35.7 per cent of adults in 1996 benefited from Department of Social Security (now Centrelink) payments.40

AUSTRALIA’S DIVERGING REGIONS

Table 4.8 Proportion of net disposable income derived from transfer payments, 1996 NSW Vic Qld WA SA Tas Capital city areas Inner 11.7 15.1 13.8 16.0 19.6 14.8 Middle 13.1 16.6 14.1 14.9 18.3 19.9 Outer 14.3 14.9 19.9 13.4 22.8 27.7 Within 75km of 21.0 15.4 20.8 23.4 20.6 20.4 capital city Major non21.3 22.0 17.6 — — 22.9 capital city Towns Pop >40 000 18.6 25.5 21.4 — — — Pop 23.2 22.7 21.5 14.8 24.6 27.4 10 000 – 39 999 Pop 2000 – 9999 24.4 23.6 16.6 14.9 22.6 26.3 Pop < 2000 26.4 21.8 16.9 11.0 22.9 22.7 Non-urban 21.3 18.2 20.2 13.4 18.7 25.1 Total 16.5 16.9 17.7 15.0 20.3 22.6

• 77

Aust 14.0 14.8 15.5 19.5 19.9

21.7 21.7 21.2 20.6 19.5 16.9

The ACT and NT are not listed separately in this table, although they are included in the calculations for the Australian total.

NOTE

Department of Family and Community Services (1999) Social Indicators for Regional Australia: Attachment to the Department of Family and Community Services Submission to the House of Representatives Standing Committee on Primary Industries and Regional Services Inquiry into Regional Infrastructure and the Development of Australia’s Regional Areas, DFACS, Canberra, p 48.

SOURCE

C A F É S A N D R E S O RT S : T H E TO U R I S M R E G I O N S Along with retirement migration on Australia’s east coast, a few regions have generated significant economic growth through becoming hubs within the booming domestic and international tourism industry of the past two decades. Thus, in a relatively short space of time Cairns in Far North Queensland was transformed from a remote corner of Australia dependent on a few agricultural commodities (mainly sugar), to a strategic node of Asia-Pacific tourism. Japanese hotel investment and the related surge in Japanese tourists during the late 1980s and early 1990s repositioned Cairns within international tourist networks, creating new geographies of opportunity and dependency.41 Characteristically, tourism has generated highly localised effects as a regional economic driver. Whereas until recently Australia’s east coast was dominated by domestic ‘caravan park’ and ‘motel’ tourism, this is giving way to hierarchies of industry involvement.

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

The beachfront area of Hastings Street, Noosa, is very different in shape, form and function from the Sunshine Coast’s suburbs and hinterland. Byron Bay has evolved into a premier international tourist site, whereas neighbouring towns of Brunswick Heads and Ballina have few linkages to international tourism. For affluent residents of Sydney and Melbourne, decisions to holiday in Noosa, Byron Bay or the Gold Coast are made relative to holiday choices such as Bali, Tahiti or Koh Samui, rather than neighbouring domestic rivals. Major tourism investments such as the Coolum Resort on the Sunshine Coast, the location for the 2002 Commonwealth Heads of Government Meeting, recognise the interconnections between domestic and international tourism, and the roles of business facilities and conferences for the tourist industry. Many of the east coast locations that have benefited from tourism over the past decade have done so because of their ability to service an increasingly sophisticated and time-conscious tourist clientele that demands airport access, high-order services, good coffee, and environmental amenity. For the Gold Coast and Sunshine Coast in particular, these developments present contradictions for urban form and growth. At the 1996 census, the three major urban areas with the lowest average household incomes were the Sunshine Coast, Launceston, and the Gold Coast.42 In the Gold Coast, 38.9 per cent of households had an average weekly income below $500, compared to 35.6 per cent for the nation as a whole. There is significant intra-urban differentiation in socioeconomic wellbeing within the Gold Coast, with fringe inland areas such as Mudgeeraba and Worongary having far greater affluence than some coastal areas, such as Coolangatta. The combination of tourist economy growth and lifestyle migration in regions such as the Gold Coast and Sunshine Coast has generated particular urban forms, with new consequences for growth and inequality: Queensland’s Sunshine Coast is an unexceptional example of those instant urban regions of the late twentieth century. As part of the northern edge of south-east Queensland’s triangle of proto-urbanisation – the other two being the Gold Coast and the Brisbane River Valley – it represents much of what is thought of as ‘new’ in urban life. It has no industrial base, little State bureaucratic function, and a built form which runs in linear fashion along the coast. Its typical focal points include shopping malls

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and theme parks, and while the waterfront strip has clusters of moderately tall ‘high-rise’ apartment blocks, the standard domestic design is the suburban housing estate.43

S U P E R M A R K E T S A N D Q UA R R I E S Writing in 1980, former Australian Financial Review editor Max Walsh previewed Australia’s economic future in a chapter titled ‘Back to the Quarry’.44 Walsh argued presciently that reduced tariffs and heightened international competition would accelerate employment loss in manufacturing, leaving Australia increasingly reliant on its traditional, primary sector exports. Evidently Walsh’s narrative was incomplete: he failed to recognise the growth of the services economy as a source of employment, and the boom in tourism beginning in the mid-1980s. Yet, Walsh’s analysis correctly argued that Australia’s key mining and agricultural resources would remain vital for the economy. In some analysts’ rush to enthuse about the growth of Australia’s post-industrial or services-led economy, the ongoing contribution of primary industries is sometimes overlooked. These sectors are examined in depth in Chapter 7, so there is little point in extensive analysis here. From the perspective of Australian regional change, their significance lies in the fact that they provide a basis for significant growth in areas with relatively few alternatives. The mining sector has brought substantial economic activity to many of the most remote parts of Australia. Successful aquaculture industries, such as the tuna farming operations of Port Lincoln, South Australia, have generated enormous growth in an otherwise isolated region. Increasingly however, the key to primary industries’ regional contributions lies with their abilities to generate localised linkages with upstream and downstream activities. As recounted in Chapter 7, declining mining employment in Kalgoorlie has been offset partially by growth in mining services employment. Singleton, in the NSW Upper Hunter coal belt, has generated substantial local employment through becoming a regional hub for mining sector ancillary sevices. These cases contrast starkly with some other regions with significant mining operations but with few local linkages. In the Northern Territory for example, the mining sector is far and away the largest contributor to gross Territory product (in 2001, it contributed $2.6 billion of output), but less than 10 per cent of this amount was ‘grounded’ in the Territory in the form of wages and salaries.45

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A similar set of themes relate to agriculture where, because of farm consolidation and capitalisation, the regional multipliers of farming may tend to weaken. At the same time however, the emergence of some new agricultural industries (particularly specialist horticultural sectors) may demand greater labour inputs than traditional, broadacre farming. The expansion of olive plantations in western Victoria and southern Queensland is a case in point where a displacement of grains/livestock sectors by these activities has generated increased labour demand. The dramatic growth of viticulture across Australia during the 1990s and early 2000s also represents the growth of an industry with extensive local demand for labour and purchases. In the Murray-Darling Basin, these developments have been linked closely to the restructuring of water pricing, with the effect that agriculturists have been encouraged to shift into activities with higher financial returns per unit of water. The town of Griffith, in the Murrumbidgee Irrigation Area (MIA), represents a case study of these processes of agricultural restructuring. During the late 1990s Griffith experienced rapid population growth encouraged by shifts towards more labour-intensive agricultural activities and the development of downstream linkages in food and wine processing.

THE VICTIMS OF RESTRUCTURING: PROBLEM SITES I N T R A D I T I O N A L M A N U FAC T U R I N G Declining employment in certain areas of manufacturing and agriculture have resonated regionally. Since the early 1980s, regions such as Whyalla, the La Trobe Valley, the Illawarra and the Hunter have had to cope with substantial job losses in industries previously considered ‘taken-for-granted’ employment drivers. Over time, the initial shocks of losing traditional jobs have given way to new strategies of diversification, sometimes with significantly positive results. For example, BHP’s 1999 announcement to close its steelmaking operations in Newcastle occurred at the same time as the Hunter Valley was experiencing booming wine production. Moreover, although the Hunter Valley traditionally has been dependent upon the steel industry, sectors such as textiles and poultry have also been important economic drivers. Although these sectors too have been under employment stress, their existence nonetheless provides an element of diversity within the region’s manufacturing base.

AUSTRALIA’S DIVERGING REGIONS

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CHALLENGES FOR POLICY Greater regional diversity presents challenges for the economic development and welfare policies of both State and Federal Governments. Australian Governments, and especially conservative governments, have not focused on explicit policies for the development of regions and localities. Section 54 of the Constitution restricts the Federal Government’s ability to provide funding that favours one State over another (thereby limiting policies that seek to promote regions within States) while income support policies have focused on meeting the needs of individuals, rather than the places where they live, work and engage in community life.46 Their review of communities of opportunity and vulnerability amongst Australia’s regional cities led Stimson, Baum and O’Connor (2001) to note that Australian policy frameworks have always favoured ‘people’ policies over ‘place’ policies and that: The policy challenge presented by change in rural and regional Australia is to develop a better mix of people-based and placebased policy, as it is obvious the mix we have at present is not working.47 These comments highlight the tough questions facing governments: on the one hand they need to accommodate the further growth of already prosperous regions, and on the other, facilitate the growth of stagnant or declining regions. Singular, uniform policies are unlikely to achieve this end. Federal governments are confronted by this dilemma, as are the States. Community development and community capacity-building may offer a solution. The Howard Government has embraced the notion of community solutions to social problems for some time: on coming to power it renamed the Department of Social Security the Department of Family and Community Services, and community concepts were an important component of the McClure Report that reviewed welfare programs and philosophies across Australia.48 The Howard Government subsequently established the Stronger Communities program within DoFACS. In its review of community development and capacity-building Mission Australia observed the Federal Government supports community capacity-building through community economic development, community business partnerships, social entrepreneurs and by fostering micro-business.49

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What solutions can community approaches offer to places with high unemployment, low incomes, falling population, declining services and limited economies? Moreover, who is the community? Do communities only exist in farming areas or country towns where ‘the community’ may be easily identified, or do community solutions have some relevance to the capital cities and their sprawling subregions? It is best to start with what community approaches are not, and should not be. They are not an excuse to shift the cost and effort of social and economic development strategies from well-resourced central governments to poorly funded local governments or volunteer groups. Community development needs to be pursued in addition to conventional labour market and income-support policies. Community development embraces a range of approaches that look to build the capacity of the community, and the individuals that live within it, to work for their own good. Community development has a philosophy that asserts, ‘The more people are involved socially and economically in their communities, the stronger the community becomes — resulting in greater benefits to individual members’.50 Community development may include the establishment of social enterprises, the development of leadership programs, the foundation of Intermediate Labour Market Organisations (ILMOs) that attempt to bridge the gap between formal job training and unemployment for the long-term disadvantaged. It can include enhancing the life skills and employability of the poorest members of society, the provision of community infrastructure such as transport, the redevelopment of run-down housing estates and the provision of Internet training. A raft of programs exist at the Federal and State levels, with the New Enterprise Incentive Scheme, for example, assisting the formation of micro-businesses. Mission Australia commended this program, noting that not only did it add to the stock of small businesses in a variety of regions, but that 69 per cent of participants moved from unemployment to employment.51 There is evidence of other community development philosophies and programs that work. Victoria, South Australia and Western Australia run programs that seek to strengthen the economic and social resources of country regions and towns by identifying and training ‘community leaders’. A review of the Western Australian program found it to be very successful, with participants reporting a range of positive outcomes both for themselves and the places where they live.52

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Community development is not a panacea for the ills of Australia’s regions. Local Employment Initiatives (LEIs) were embraced in an earlier era and they displayed much of the local or community development focus that distinguishes the current crop of initiatives.53 In large measure they were perceived to be less than effective because they were too small to have an impact on unemployment rates, and because they failed to address many of the real hurdles — such as shortages of economic infrastructure — that impeded the growth of regions and localities.

5

LOCAL ECONOMIC DEVELOPMENT IN RESOURCE-BASED ECONOMIES

Many non-capital regions of Australia are heavily dependent on agricultural and mining activities for jobs, incomes and economic growth. Australia’s economic history as an outpost of European settlement in the Asia-Pacific area is intertwined with the establishment of primary industries. The national psyche is imbued with the narratives of rural development; be they the 1850s gold rush, the development of the merino sheep, or the construction of the Snowy Mountains Hydro-Electric Scheme. However, the centrality of rural themes and images within Australia’s national identity sits uneasily with the turbulent performance of many rural industries over recent years and, importantly for the concerns of this book, the capacity of these sectors to anchor regional wealth-creation. Primary industries remain the backbone of many regional economies across Australia. In some cases the development of new mines or new agricultural industries has breathed new life into otherwise moribund regional economies. The town of Port Lincoln, South Australia, for example, boasts the highest percentage of millionaires per capita in the Southern hemisphere, and this is related directly to the growth of the high-value southern bluefin tuna and abalone extractive industries since the early 1980s. However, farm or mining sector restructuring has adversely affected many rural regions. This is apparent both in the problems of wheat/sheep belt towns, and traditional mining centres such as Broken Hill, Mount Isa and Kalgoorlie. Moreover, the intense demands of global competitiveness have restructured the ways these industries are situated within regional economies. Contemporary primary industry investments are characterised by complex spatial flows. Local towns may be bypassed for

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purchases and labour in favour of ‘international best practice’ solutions that draw resources from far afield. This is illustrated most dramatically with the advent of fly-in fly-out (FIFO) mining — where labour is recruited and flown in from far afield — but these tendencies are also apparent in a number of new developing agricultural industries. For regional policy practitioners these issues pose fundamental questions. In many regions of Australia there are few wealth-creation alternatives aside from agriculture and mining. Consequently it is often the case that regional policy initiatives necessarily become intertwined with endeavours to restructure existing primary industries and to search for new ones. Kalgoorlie, for example, has attempted to offset declining mine employment through initiatives designed to encourage the development of the mining services sector (equipment repairs, geological services etc). In broadacre wheat–sheep regions, regional policy practitioners have attempted to augment traditional markets with new grains-based industries. This chapter explores the regional policy issues surrounding such initiatives. To set this scene, the chapter begins by assessing these sectors from a national perspective.

THE CHANGING ROLE OF PRIMARY I N D U S T R Y I N T H E N AT I O N A L E C O N O M Y In contemporary Australia it is trite to say that the Australian economy no longer ‘rides on the sheep’s back’. On the one hand, the rise of a more diverse and complex national economy has weakened the national significance of primary industries. The services sector has grown and there has emerged a generally more diverse primary industry export basket. On the other hand, however, although they may be diminished when measured against national economic indicators, primary industries continue to play important roles regionally and, more to the point, can continue to offer key income and employment growth prospects. Although some commentators at times may rush to embrace the notion that Australia possesses a ‘post-industrial’ economy, where rural manufacturing industries have been eclipsed by services and high-technology industries, these sectors still command an important place within the Australian economy. Clearly the contribution of primary industries to national income is much diminished since its halcyon days of the 1950s. According to data presented at the 1996 Outlook conference, between 1970 and 1995 the volume of Australian agricultural production increased by 43 per cent, but its real value was only 55 per cent of that in 1970.1

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In 1955 primary industries contributed 18.2 per cent of Australia’s GDP, with agriculture (15.9 per cent) accounting for the vast bulk of this activity.2 By 2000–01 these sectors accounted for just 7.2 per cent of GDP.3 Yet these statistics conceal considerable temporal and sectoral variation in the fortunes of industries. In the case of agriculture, a dramatic fall in the sector’s contribution to national GDP from the 1950s to the 1970s was arrested in the 1980s and 1990s. Between 1955 and 1975 agriculture’s contribution to GDP had fallen precipitately from 15.9 per cent to just 3.4 per cent. Yet in the following twenty-six years it fell only marginally, from 3.4 per cent to 2.8 per cent. The National Farmers’ Federation estimates that agricultural employment fell by 100 000 between the 1950s and the mid-1990s but the rate of decline has abated since the late 1970s. Over the 1980s Australia was the only country in the OECD to experience an increase in agricultural employment.4 In the 1990s, agricultural employment fell steeply, largely in response to drought, before recovering. Between 1991 and 1996 employment in agriculture in non-metropolitan Australia fell relatively modestly, by 1.5 per cent.5 Sectoral diversification has been the key factor in arresting agriculture’s decline. If the national economy can be said to no longer ‘ride on the sheep’s back’, the same can not be said of agriculture itself. The dependence of Australian agriculture on wool, wheat and beef has given way to newer sectors (wine, nurseries, cotton, specialist fruit and vegetable growing). Documenting the extent of these changes however is hampered by problems of historical consistency in ABS data. A reliable statistical series is available only from the mid-1990s. Table 5.1 demonstrates that in the five years to 2000 the experiences of different farm sub-sectors varied markedly. The number of farm enterprises in Australia increased marginally in this period, but farm numbers fell in five of the nation’s six largest farming sectors. The grain-growing sector is the sole exception to this pattern. Its sizeable increase, however, is largely a delayed response to the drought of the early 1990s. From a regional policy perspective these issues are important because many newly emergent sectors have high on-farm labour demands and possess strong downstream linkages with processing industries. The wine grapes industry (which has experienced explosive growth throughout regional Australia since the early 1990s) is archetypal of these tendencies. Diversification of Australian agriculture has also been associated with increased specialisation. In general, rural producers have attempted to replace bulk commodity production with strategies designed to add value by producing to

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end-users’ requirements. The need to meet exacting quality specifications has been a dominant theme throughout contemporary agricultural restructuring. This is apparent both in traditional agricultural activities — for example wheat, where traditional ‘pool’ production has been challenged by sales devices that target endusers’ requirements6— and emergent industries (for example, wine). Diversification and specialisation in agriculture has also had important ramifications for the embedding of agricultural industries within regions, an issue discussed later in this chapter. Table 5.1 Number of establishments with agricultural activity, 1995–2000 31 March 1995 Plant nurseries 1 Cut flower and flower seeds Vegetable growing 4 Grape growing 4 Apple and pear growing 1 Stone fruit growing 1 Kiwi fruit growing Fruit growing n.e.c. 5 Grain growing 10 Grain-sheep/beef cattle 18 Sheep-beef/cattle farming 11 Sheep farming 16 Beef cattle farming 36 Dairy cattle farming 14 Poultry farming (meat) Poultry farming (eggs) Pig farming 1 Horse farming 1 Deer farming Livestock farming n.e.c. 2 Sugar cane growing 5 Cotton growing Crop & plants n.e.c. 2 Total Agriculture 143 SOURCE

929 872 724 406 299 410 49 214 905 246 999 234 092 175 721 526 531 647 399 640 090 824 568 500

30 June 2000 2 1 5 6 1 1 5 16 18 9 14 35 13

1 2 1 5 1 144

496 134 313 522 229 257 20 794 463 232 253 302 236 820 845 508 145 021 196 158 029 974 614 560

Percentage change 29.4 30.0 12.5 48.0 –5.4 –10.9 –59.2 11.1 60.0 0.0 –22.9 –12.1 –3.4 –2.5 17.2 –3.4 –25.2 22.7 –50.9 –56.1 –1.2 18.2 –37.1 0.7

ABS 7113.0.

Only includes establishments with Estimated Value of Agricultural Operations (EVAO) greater than $5000 annually.

NOTE

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The national contribution of mining to GDP contrasts with that of agriculture. Since the 1950s the mining sector has increased in importance to the national economy: from 2.3 per cent of GDP in 1955 to 4.4 per cent in 2000–01. Indeed, in Australian economic history the mining sector took off at about the same period (the late 1960s) as agriculture’s demise, premising Australia’s moniker as ‘the lucky country’: just as the opportunities for one sector seemed in peril, another rose. Australia’s mining sector is broadly based, with significant production volumes of coal, gold, iron ore, aluminium, petroleum, natural gas, lead, silver and palladium. In 2000–01, mineral exports were approximately $45 billion, accounting for roughly 40 per cent of total export earnings. Like agriculture, the pressures of global competition have impacted harshly on this sector over the past decade. In the coal industry for example, a considerable number of smaller underground mines have been closed (notably in NSW’s Hunter Valley and Southern Tablelands) at the same time as new, large-scale open-cut mines have been opened (in the Upper Hunter Valley and Queensland’s Bowen Basin).

P R I M A RY I N D U S T R I E S A N D A U S T R A L I A ’ S R E G I O N S Although national accounts data indicate primary industries contribute less than 5 per cent of Australian GDP, these sectors play vital roles in many regions. In 1996 it was estimated that the 140 700 farm businesses in Australia supported 220 000 farm households representing 630 000 people. This equates to 13 per cent of the nation’s rural and regional population.7 Measured in terms of employment dependence, agriculture contributed 9.9 per cent of non-metropolitan jobs in Australia.8 The dependence of regions on agriculture varies greatly across Australia. As seen in Table 5.2, the relative importance of agriculture for statistical sub-divisions (SSDs) in non-metropolitan NSW ranges from over 30 per cent of employment in Murray-Darling and Macquarie-Barwon, to less than 3 per cent in the regional centres of Queanbeyan, Tweed Heads and Albury.9 The table suggests that for a number of regions west of the Great Dividing Range, agriculture comprises more than 25 per cent of employment. On the other hand, in coastal areas agriculture tends to account for less than 10 per cent of employment. These differences are accentuated when agricultural employment is expressed as a percentage of total populations (the final column of Table 5.2). Because employment-to-population ratios tend to be lower in coastal SSDs (a result of more unemployed and non-working age persons), the economic importance of agriculture in these regions tends to be lesser still.

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Persons employed in agriculture (A)

Total number of employed persons (B)

Total population (C)

Table 5.2 Regional dependencies on agricultural employment, non-metropolitan statistical subdivisions, NSW, 1996

Murray–Darling

1 619

4 305

10 211

37.61

42.16 15.86

Macquarie–Barwon

2 434

7 716

19 929

31.54

38.72 12.21

Central Murray

3 835

12 888

30 180

29.76

42.70 12.71

North Central Plains

3 469

12 731

29 618

27.25

42.98 11.71

Upper Murray (excl Albury)

2 127

8 109

19 960

26.23

40.63 10.66

A/B %

B/C %

A/C %

Lower Murrumbidgee

4 658

18 665

42 000

24.96

44.44 11.09

Lachlan

6 246

25 187

64 452

24.80

39.08

9.69

Upper Darling

924

4 961

11 919

18.63

41.62

7.75

Northern Slopes

5 331

32 250

81 138

16.53

39.75

6.57

Sthn Tablelands (excl Queanbeyan)

4 359

26 477

62 398

16.46

42.43

6.99

Northern Tablelands

3 936

24 472

64 465

16.08

37.96

6.11

Central Macquarie

5 130

33 045

84 554

15.52

39.08

6.07

Central Murrumbidgee

5 356

43 232

103 799

12.39

41.65

5.16

Hunter balance

4 082

34 739

90 719

11.75

38.29

4.50

Central Tablelands (excl Bathurst Orange)

1 491

13 738

33 922

10.85

40.50

4.40

866

8 685

25 085

9.97

34.62

3.45

Richmond-Tweed SD bal

5 246

56 897

161 605

9.22

35.21

3.25

Snowy

1 221

16 453

30 288

7.42

54.32

4.03

Clarence

2 935

44 487

135 766

6.60

32.77

2.16

Lower South Coast

1 219

19 269

59 292

6.33

32.50

2.06

Hastings

2 318

40 832

127 219

5.68

32.10

1.82

Far West

Bathurst-Orange

1 284

30 089

70 197

4.27

42.86

1.83

Illawarra Bal

1 485

39 268

113 508

3.78

34.59

1.31

Albury

619

20 778

48 630

2.98

42.73

1.27

Tweed Heads

283

12 378

41 030

2.29

30.17

0.69

Queanbeyan

306

17 545

36 324

1.74

48.30

0.84

SOURCE

CDATA96.

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The varying dependence of regional economies on agriculture as a source of employment underscores the simplicity of conflating the fortunes of the agricultural sector with the performance of regional economies. All too often (especially in the metropolitan media), discussion of ‘regional Australia’ is tied to the notion that the health of the farm sector drives the health of regional economies in rural Australia. Obviously there is an economic relationship between the performance of farms and the regions in which they are situated, but this relationship is not always as strong or direct as sometimes imagined. A model to analyse these issues is provided in the ‘uncoupling thesis’ advanced in the early 1990s by University of New England researchers Richard Stayner and Ian Reeve. This model suggests the economic linkage between agriculture and regional economic performance is generally weak. According to these researchers: It is true that the long-term decline in the terms of trade for agriculture has contributed to declining population and economic activity in many rural towns. Closer analysis reveals, however, that there are many other important factors resulting from changes in population and economic activity in rural towns. It is an oversimplification to couple the fortunes of agriculture with the fortunes of the towns that are located in agricultural areas.10 Stayner and Reeve measured statistical relationships between real changes in agricultural production and various sociodemographic variables for 109 NSW non-metropolitan LGAs. In finding that there was no statistical relationship between real changes in agricultural production and population growth, retail sales or employment, the researchers concluded that there is ‘very substantive evidence that the economic performance of agriculture in rural regions of NSW is relatively uncoupled from key indicators of economic and demographic change in those regions’.11 There are obvious limitations to Stayner and Reeve’s approach. Their model provides only a static and mechanistic portrayal of these relationships at only one geographical scale (local government). Their approach does not per se demonstrate causal linkages one way or another. For example, it could be the case that increased agricultural production may boost regional economic performance, but other factors (say, a downturn in the tourism industry) could more

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than outweigh this effect. At the same time, however, Stayner and Reeve’s research is important in hinting at the inter-play of two important dynamics in the Australian rural economy: the considerable economic diversity of many regional economies in Australia (diluting their dependency on the farm sector), and the considerable complexity in the geographies of farm expenditure patterns (diluting farmers’ economic relationships with their local regions). The data in Table 5.2 emphasises the validity of the first point. The following section discusses the latter.

MEASURING THE ECONOMIC FLOWS OF PRIMARY INDUSTRIES: I N P U T – O U T P U T A N A LY S I S The regional economic interactions of primary industries are, theoretically at least, measured most comprehensively through Input–Output (IO) models.12 This approach involves the preparation of transaction tables that represent the ways inputs (purchases) and outputs (expenditures) of any industrial sector are distributed among other sectors. However, caution must be exercised with the application of IO models. Their preparation is expensive, complex and dependent upon many assumptions being made about economic activity. Like any economic model their utility is dependent upon the veracity of these assumptions and, because of absent or contested data, conclusions generated from IO models are often subject to challenge. Moreover, because they measure an economy at a single point in time they are static; their assumptions may not hold once conditions change. And as Frank Stilwell has observed, IO modelling is a tool rather than a theory: What input–output analysis is not is a theory of regional economic growth: it tells us nothing about the origins of the growth stimuli and why they are more pronounced in some regions than in others.13 Nevertheless, at national and regional scales IO models can provide relevant tools to generate insights into the economic linkages associated with primary industries. For example, using commissioned IO analysis in 1993 the National Farmers’ Federation argued that although agriculture itself contributed less than 5 per cent of GDP: ‘when indirect employment is taken into account, agriculture may be

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responsible for as much as 27 per cent of total employment in the Australian economy’.14 IO applications at regional scales are also used frequently (particularly in Impact Assessments) to predict the size of indirect benefits accruing from particular projects. In Australia, considerable problems of data availability hinder the robust use of IO analysis. The ABS publishes national IO tables biannually and, at the time of writing, the most recent IO tables were those for 1996–97 (published by the ABS in March 2001).15 These national tables disaggregate the national economy into 106 separate economic sectors, and provide a basis to examine linkages and dependencies from one sector of the economy to another. Because of the level of disaggregation employed by the ABS the national tables are especially useful for considering the economic importance of primary industries. The ABS national tables disaggregate agriculture into ten sub-sectors, while mining is disaggregated into five. This enables close examination of the backward and forward linkages of key sectoral components of these industries. This potential is apparent in Figure 5.1, which illustrates diagrammatically the ABS estimation of input and output flows for the sheep industry in 1986–87 and 1996–97. The ABS estimates that in 1996–97 total on-farm turnover from sheep grazing (‘sheep production’) was $3584.5 million. As indicated in the box in the centre of Figure 5.1, this enabled payments of $235.1 million for labour (‘compensation to employees’), $94.3 million in net taxes, and $1688.3 million in the purchase of intermediate inputs. Subtracting these amounts from total production indicates that there was a return to enterprises engaged in these activities (‘gross operating surplus and mixed income’) of $1621.3 million. Backward linkages in the sheep industry (‘intermediate inputs’) are represented by the boxes at the top of Figure 5.1. For brevity, only the eight largest sectors (out of 106) are shown. The extent to which the sheep industry’s intermediate product demand for products contribute to national economic activity depends upon input–output arrangements in these sectors and, in particular, their import dependence. According to ABS estimates, the import dependence of the input sectors illustrated in Figure 5.1 varies from 44.2 per cent for basic chemicals (that is, 44.2 per cent of all basic chemicals output in Australia derives from imports) and 35 per cent for pharmaceuticals; to just 3 per cent for legal and accountancy services and zero for wholesale trade and road transport.16

LOCAL ECONOMIC DEVELOPMENT IN RESOURCE-BASED ECONOMIES

Figure 5.1 Input–Output analysis for the Australian sheep industry, 1996–97 SOURCE

ABS, Cat. no. 5209.0.

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The boxes at the bottom of Figure 5.1 represent the forward linkages from this industry. The data suggest that in 1996–97, the sheep industry contributed $1 610.8 million in direct exports (mainly live sheep or raw wool) plus inputs of $729.7 million to the meat and meat products sector (abattoirs etc) and $901.5 million to the textile fibres and yarns sector (for the processing of wool). The ABS estimated that in 1996–97 the Australian meat and meat products sector generated $10 401.3 million in production and paid $1548.2 million in wages and salaries. This industry relies clearly upon the onfarm production of livestock, including sheep. During the same year, the textile fibres sector was estimated to have generated $2136.1 million in production and paid $510.5 million in wages and salaries. Purchases of raw wool account for 42.2 per cent of the intermediate inputs in this industry. The national IO tables suggest that although primary industries contribute just 7 per cent to Australian GDP, this is a false measure of their national significance. These sectors have extensive backward and forward linkages. In part, this helps explain the considerable policy attention accorded these industries by successive governments over many years. In the case of agriculture, policy initiatives since the early 1990s have aimed to improve supply-chain co-ordination and to build new export markets. This has involved inter-agency efforts to develop holistic ‘seed-to-supermarket’ strategies connecting the interests of all players within supply chains (farmers, the transport sector, processors, wholesalers and retailers, export agencies, and agencies concerned with monitoring food quality, health and safety).17 Explicitly, this acknowledges that the importance of primary industries lies not with themselves alone, but their broader role in the economy.

HOW DO PRIMARY INDUSTRIES INTERACT WITH REGIONAL ECONOMIES? To assess the regional economic role of primary industries it is vital to appreciate the ways these activities are embedded spatially within their local regions. This includes consideration of issues such as whether farm or mining enterprises make use of local as opposed to ‘imported’ labour; if input purchases are made from local enterprises or from suppliers in other regions, or if forward value-adding is undertaken within the region or somewhere else. In the language of

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IO modelling, what matters in these instances is the size of the regional coefficient: the extent to which economic flows remain within the region.18 Furthermore, expenditures that occur within regions will then produce induced (or in the language of IO modelling ‘Type II’ effects) as the recipients of economic flows in turn make spending decisions. Unfortunately, analysis of these issues is hindered by the fact that Australia does not possess a comprehensive set of transaction tables at the State or regional scale that enable IO modelling. The ABS does not publish IO tables at State or regional scales. Other tiers of government have not addressed these data gaps in any coordinated fashion. Among the States and Territories, only Queensland has systematically prepared and published State-based IO transaction tables. The Queensland Government Statistician’s Office has published guidelines on the use of IO analysis by government agencies and, in 2001, Queensland adapted the 1996–97 ABS national IO tables for the State’s economy.19 Of the others, the Western Australian and Northern Territory Governments have funded the preparation of State/Territory-based IO models, however these have not formed part of an historical series and are not publicly available. For New South Wales, Roy Powell and colleagues at the Centre for Agricultural and Regional Economics (CARE), a private consulting firm, have been leading proponents of regional IO analysis. The absence of a co-ordinated system for preparing and making publicly accessible State-based IO transaction tables presents a major shortcoming for Australian regional analysis. This is particularly important for primary industries because the existence of such a framework would assist greatly in the examination, assessment and public debate of these industries, especially when it comes to analysing major new investments. As it is, although IO analysis is used widely by private practitioners, frequently at the regional level, this research is not always published. Without publication, the veracity of assumptions that underlie findings cannot be assessed. Consequently, analysis of these issues requires the examination of separate statistical collections and studies. The next two sections examine issues relating to the regional purchasing (inputs) and downstream linkages (outputs) respectively of Australian agriculture, followed by an examination of these same themes with respect to the mining sector.

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REGIONAL PURCHASING BY FARM BUSINESSES In the absence of comprehensive regional IO tabulations, a number of survey-based studies have attempted to measure the size and significance of farmers’ local purchasing. The most significant recent study involved a set of supplementary questions on regional purchasing administered to broadacre farmers as part of the 1998–99 ABARE farm survey. 20 Broadacre farmers’ expenditures have major impacts on local economies, especially in smaller towns. By dividing average farm expenditures by the resident populations of towns and regional centres, researchers estimate that farm expenditures are the equivalent of $12 000 per resident in small towns (with populations less than 1000). This survey also concluded that town size and road networks significantly influenced the incidence of regional purchasing.21 ABARE’s data evidently apply only to broadacre farmers. Two separate surveys of the dairy and wine grapes industries provide complementary data from other agricultural industries. Insights into regional purchasing patterns in the dairy industry were provided in a survey of 109 Bega Valley dairy farmers in 1999.22 The aim of this study was to assess possible socioeconomic impacts arising from dairy sector deregulation. The study found that 75.2 per cent of farm business expenditures by Bega Valley dairy farmers were incurred in the major regional centre of Bega. These expenditures injected an estimated $43.0 million into this town during 1999, the equivalent of $288 600 per dairy farmer. Expressed in relation to the town’s population, these expenditures were the equivalent of $10 383 per Bega resident. In the wine grapes industry, a representative survey of 24 grape growers in the Griffith–Leeton region of the NSW Riverina for the 2000 vintage indicated that local expenditures were $198.72 per tonne of production. Extrapolation of these results suggests that MIA wine grape growers made local expenditures of at least $27.3 million. Given that the farm-gate value of MIA wine grapes was $60.5 million in 2000, this indicates that local expenditures constitute the equivalent of almost 50 cents in every dollar of wine grapes sold in the MIA.23 These studies highlight that business purchases by farmers make important contributions to local towns. For regional policy practitioners, however, perhaps a more pertinent question is

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whether the size of these economic flows is changing over time. If farmers are reducing their dependence on local regions for their business purchases, this bodes ill for these economies. In this regard, two elements of change can be postulated. First, anecdotal and indirect evidence suggests that farmers are redirecting their purchases within regions, from smaller to larger centres. This is a component of the so-called ‘sponge centres’ effect whereby, because of improved mobility and economic change, larger regional centres have taken trade from nearby competitors. Policy responses to these trends are much disputed. On the one hand, some researchers and practitioners advocate capacity-building initiatives in small towns to retain their social fabric such as Main Street programs, while others have argued that small town marginalisation is inevitable and, in terms of economic productivity and competitiveness, difficult to defend. 24 Second, in some cases local regions may be bypassed completely as farmers purchase supplies directly from capital cities or even, in this era of e-commerce, direct from overseas. The absence of longitudinal analyses of farmers’ spending patterns makes it difficult to gauge the extent to which these practices may occur. The surveys cited above suggest substantial proportions of farm business expenditures continue to be made at local levels. However for some expenditure categories, particularly large capital purchases, there may be increasing levels of regional expenditure leakage. Changing farm size would seem to be a critical factor for changing patterns of farm purchases. Because of their abilities to exploit economies of scale in purchasing, larger farm enterprises intuitively may be expected to have higher propensities to make significant outof-region purchases. Over recent years there have been considerable changes to average farm sizes within Australia although, because of changes to ABS definitions of what constitutes a ‘farming enterprise’, these are not easily measured.25 Table 5.3 illustrates changes for all farms from 1996 to 2000. A general pattern of increased scale production is apparent from these data. These trends are revealed also when focusing on the traditional mainstay of farming in Australia’s inland, the grains and livestock sector. Between 1995 and 2000, the distribution of grains/livestock farms became increasingly ‘topheavy’. In 1995, farms with turnover greater than $500 000 accounted for 3.41 per cent of farms in these sub-sectors; by 2000 they accounted for 7.22 per cent (Table 5.4).

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Table 5.3 Number and percentage of total farm businesses by size of turnover, Australia, 1996–2000

$ 22 500 – $ 49 999 $ 50 000 – $199 999 $200 000 – $499 999 $500 000 and over All

1996 No. 23 362 56 177 26 665 9 310 115 514

1998 % 20.2 48.6 23.1 8.1

No. 22 463 45 036 25 125 11 642 104 267

2000 % 21.5 43.2 24.1 11.2

No. 19 171 46 526 25 796 12 323 103 815

% 18.4 44.8 24.8 11.9

ABS 7113.0. Only includes establishments with Estimated Value of Agricultural Operations (EVAO) greater than $22 500 annually. SOURCE NOTE

Table 5.4 Distribution by turnover of grains and livestock farms, Australia, 1995–2000

1995 1996 1997 1998 1999 2000

Less than $50 000 43.74 41.53 40.43 40.22 42.81 40.13

$50 000$199 999 39.40 37.01 34.87 35.33 32.79 35.42

$200 000$499 999 13.46 16.22 17.94 17.72 17.21 17.23

$500 000 and over 3.41 5.24 6.77 6.73 7.19 7.22

Total % 100.00 100.00 100.00 100.00 100.00 100.00

ABS 7113.0. Farm enterprises in the sheep, sheep-grains-beef cattle, grains, sheep-beef, and beef sub-sectors. SOURCE NOTE

In some agricultural industries the trends are clearer than in others. In dairying for example there has been an unambiguous trends towards fewer and larger farm enterprises.26 A regional perspective on this issue is illustrated by Andrew Davidson’s study of dairy restructuring in Dungog Shire, in the NSW Upper Hunter. Between 1990 and 1995, the number of dairy farms with herds of less than 70 cows fell from 21 to 6, whereas the number of farms with herds of more than 100 cows increased from 24 to 29.27 This restructuring is significant because it is estimated that one adult can effectively manage about 80 cows. Hence, the shift to larger dairy herds implies the use of more than one farm worker, possibly through wage labour. The restructuring of farming can also exert an impact upon the incidence of regional purchasing. As farming is inserted more tightly within vertically co-ordinated production chains, it is often the case

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that end users and large corporations dictate the type of inputs used in on-farm operations. Contract farming in the horticulture sector for example, has been associated generally with a trend towards a more exhaustive detailing of input and management specifications within legal instruments.28 At times, this may lead to regional agrisupply businesses being bypassed for direct purchases from large processing firms. In the Australian processing tomato industry for example, between 1995 and 2000 the seeds subsidiary of H.J. Heinz & Co. increased its market penetration from 25 per cent to 72 per cent and, because growers purchase Heinz seeds from the company itself, local seeds suppliers lost considerable business.29

CHANGING REGIONAL INTERACTIONS: MINING Our knowledge of the regional economic embedding of mining is far superior to that of agriculture. Mining activities have been restructured dramatically in recent years. Within the sector there has been a set of paradigmatic changes with respect to mine management and labour practices. The contemporary mining sector now relies heavily on capital-intensive mining processes benchmarked to supposed ‘world best practices’, accompanied by the contracting-out of vast swathes of mining operations. In general, these processes have weakened the interactions between mining operations and the regions in which they are located. A brief example of the coalmining cluster in Singleton Shire, in the NSW Upper Hunter illustrates the types of interactions that can exist between primary industries and regional economies. The Singleton region is one of the most productive coal mining areas of the world, producing approximately 65 million tonnes of coal from 24 mines. In terms of backward linkages, although the specialist machinery used in the mines is purchased from outside the region, Singleton Shire has benefited from job opportunities in equipment servicing, repairs and parts supply. The Mount Thorley and Maison Dieu industrial estates in Singleton accommodate over 100 businesses linked to coalmining. In terms of forward linkages, the availability of coal has led to the local development of the electricity generating industry. NSW’s two largest electricity generators, Bayswater and Liddell, are located near Singleton. Approximately 20 per cent of the region’s coal production is purchased for use by these generators.

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The forward and backward linkages of the coal industry in Singleton Shire clearly generate considerable economic benefits for the regional economy. The size of ‘Type II’ induced effects from these expenditures is influenced, however, by the extent to which income earners (local businesses and wage and salary earners) spend monies within the region. In the case of Singleton, two issues here are noteworthy. First, the coal industry has a high propensity to employ highly paid professionals in fields such as engineering, geophysics and equipment operation. Many of these employees, in turn, tend to be relatively mobile and have high savings ratios. Often they are employed as sub-contractors, without permanent links to the region. These factors tend to blunt the size of local spending from wages and salaries. Second, anecdotal evidence suggests that a number of the employees and sub-contractors from coalmines in Singleton Shire are commuters who live in coastal and lakeside areas of the Hunter (Singleton Shire is approximately one hour’s drive from Lake Macquarie). This also tends to reduce regional economic flows to Singleton emanating from the coal industry. The point is, the coal sector in Singleton has important forward and backward linkages but the pressures of ‘global best practice’, especially in relation to replacing labour with capital and replacing permanent employees with contractors, diminishes these flows. The experiences of mines in northern Australia provide considerable evidence of these processes in action. Because of the often-controversial nature of mining in northern Australia, these issues have attracted research. In northern Australia, the benchmark research examining the regional interactions of large-scale mining operations was the study of the Ranger Uranium Mine by Ciaran O’Faircheallaigh.30 Through access to Ranger’s financial accounts, O’Faircheallaigh was able to document employment and purchasing practices by the company. These data led him to conclude that the multiplier effects of Ranger’s activities created approximately 0.7 additional jobs in the Northern Territory for every one at the mine site. This was a significant finding in terms of wider debates on mining at the time, because the Northern Territory Government had claimed previously that the Territory’s benefit from such projects was ‘four to five jobs for every [direct] one in mining’. Furthermore, O’Faircheallaigh suggested that Ranger’s local purchasing was also small. Local (Northern Territory) purchasing expenditures were equivalent to between 18 and 35 cents for every dollar of uranium sales from Ranger.31

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Later research has suggested that O’Faircheallaigh’s findings for Ranger are at the upper limits of potential regional economic benefits from northern Australian mining ventures. Research on mines at Narbalek, Tennant Creek, Gove and Groote Eylandt confirm that the employment multiplier of mining ‘is certainly not above 1.75’.32 For many mines, it is much lower. The Mount Todd gold mine near Katherine was estimated to generate an employment multiplier of just 1.17.33 The efforts of independent academics such as O’Faircheallaigh, utilising access to corporate records, makes an important contribution to debates over the regional economic impacts of mining. At times, regional development authorities and ‘boosterists’ construct discourses about mining that may artificially inflate the sector’s regional effects. Poorly calibrated IO models may also serve to exaggerate the likely impacts of mine development. These tendencies were apparent in the 1993 development of the McArthur River lead/zinc mine near Borroloola in the Gulf of Carpentaria, where a relatively sizeable employment multiplier was used to estimate the mine’s impact on the Territory economy. The EIS authors suggested that the mine’s operational phase (involving 240 mine site workers) would produce for the Northern Territory a further 226 indirect jobs, suggesting an employment multiplier of 1.94. Not only was this estimate greater than that suggested by comparable research, the fact was that, as a state-of-theart fly-in fly-out (FIFO) mining venture with minimal value-adding or transport linkages in the Territory, this mine could be expected to generate substantially lower multiplier impacts than other northern Australian mines. A review of the EIS, involving financial analysis and extensive surveying of local businesses, re-calibrated the EIS multiplier to a maximum of 1.4 throughout the whole Northern Territory, and 1.2 for the local Borroloola region.34 Care needs to be taken also in concluding how direct and indirect employment demand will affect local job markets. Many regions in which resource developments occur are characterised by high levels of unemployment. There is an obvious temptation to link potential job prospects arising from mining with the need to generate job opportunities for unemployed local residents. Increasingly however, the mining industry demands highly specialised labour. This means that local residents may be bypassed for employment. In northern and remote areas in particular, employment opportunities in resource (and construction) industries are associated with in-migration of

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short-term residents (often contract employees) with high saving ratios. A study of the construction of the massive Tindal RAAF base in the Northern Territory during the mid-1980s illustrated that many of the employment benefits were accrued by newly arrived residents who ‘moved on’ following the project’s completion.35 Two dominant trends in the contemporary mining industry spotlight the tendencies towards relatively weak regional economic interactivity. The first is the shift to fly-in fly-out (FIFO) mining. A recent survey of FIFO in Western Australia indicates that this practice occurs in 44 of WA’s 105 operating mines, representing 15–20 per cent of the State’s mining workforce.36 Under FIFO, the working hours of employees are heavily controlled, and the non-working hours de-regionalised. FIFO mines achieve cost economies through their ability to provide accommodation and catering efficiently, and to adopt staff rostering systems whereby employees and contractors work long but intense shifts over successive days before being flown home for short breaks. Accompanying FIFO are geographically distant networks for the provision of catering and other supplies. Contracts for the provision of catering or accommodation services within FIFO mines require sophisticated logistics. A relatively small number of specialist international catering companies have developed to undertake these functions. In the case of FIFO mines in northern Australia, these companies usually base their operations in Darwin, Perth or Brisbane. Foodstuffs are delivered to mine sites via either refrigerated trucking or by air. Catering staff are flown in and work shifts like those of the mineworkers. These practices frequently mean there are few opportunities for local regions to receive significant economic benefits from FIFO. At best, regional development organisations may be able to help capture small contracts for local businesses (such as landscaping, minor repairs or laundry). In some instances this has been facilitated through ‘adjacency principle’ clauses in development consent agreements, requiring mine operators to seek to have local businesses tender for contracts, where possible. The Western Metals’ lead/zinc mines at Cadjebut/Pillara, in the remote Kimberley near Fitzroy Crossing, illustrate the regional development contradictions posed by FIFO mining. It has been estimated that approximately 18 per cent of capital expenditures and 35 per cent of operational expenditures from these mines occur in the Kimberley. In 2000, Western Metals engaged approximately 450 employees and contractors, only four of whom lived in the nearby

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town of Fitzroy Crossing. The remainder were flown in for their shifts from either Perth or Broome. In 1998–99 the mines made $142 million of operational expenditure, of which only $13.5 million was spent on the purchase of goods and services in the Kimberley.37 The second trend in the mining industry encouraging relatively weak regional economic interaction is outsourcing. Over recent years there has been dramatic growth in the extent to which the mining industry has outsourced its demand for various services. Between 1968–69 and 1994–95 the percentage of mining sector operational expenditures made from commission work, contracting and subcontracting increased from 5 per cent to 17 per cent. Whereas once mining companies could be described as entities that operated mining ventures, it is increasingly the case today that their primary role is to co-ordinate project activity that is contracted out to specialist providers. In a modern Australian mine, it may be the case that geological services, transport, labour management, catering, trucking, explosives, native title and legal services are all outsourced to specialist providers. These trends have important implications for regional development because, as Kevin O’Connor and Lorna Kershaw observe, there are significant differences between the geographies of the ‘mining services’ industry and the wider mining sector. Whereas mining employment is concentrated heavily outside the capital cities (in 1991, 82 per cent of employment in the mining sector was located in non-metropolitan centres), the mining services industry conversely is highly centralised within the capitals. In 1993, 77 per cent of mining services offices were located in metropolitan centres. Consequently: The mix of job opportunities in some parts of non-metropolitan areas, traditionally very dependent on work in the mining industry, may tend to become more narrowly circumscribed, as many of the jobs, especially those involving complex tasks, will be provided by firms hiring labour in capital city locations.38

M OV I N G F O RWA R D : W H AT C A N R E G I O N S D O ? Clearly the restructuring in agricultural and mining industries can pose major dilemmas for regional practitioners. In many parts of the nation, especially inland, these primary industries continue to be major regional economic contributors and, the reality may be, there

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are few significant alternatives. The following themes provide a basis for regional strategy development with respect to primary industries.

P R O D U C T D I F F E R E N T I AT I O N A shift towards product differentiation has been a key theme in recent global restructuring of primary industries. For both the agricultural and mining sectors, this has involved the fragmentation of markets so that outputs are required to meet an increasingly exacting set of specifications by end users. At a global level, these tendencies have helped generate extensive intra-industry trade so that, to take the beef industry as an example, a nation such as the US has become both a significant importer and exporter of beef products. The US imports certain grades of beef (notably, hamburger mince) and exports other grades. These tendencies impose a new logic within world trade. It is increasingly possible to ‘sell coal to Newcastle’ so long as the specifications are different from those of local products. These trends hold major implications for primary industry regions. Traditionally, Australia’s primary industries have earned much of their export income from the sale of bulk commodities. During the past decade however the export prices of bulk commodities have been depressed through increased global production and, in the case of agriculture, subsidisation by competing nations. Bulk commodity sectors have thus faced problems of low returns and market vulnerability. Clearly, export market vulnerability is lessened where products are less readily substituted by those from a competitor. The grains industry, probably the example par excellence of a traditional bulk commodity sector, highlights the importance of product differentiation and market fragmentation. Over the past decade end users (notably food processing companies) have demanded considerable changes in the ways they purchase grains. This has involved contracting specific varieties and aligning payment rates more closely to key specifications (for example, protein levels). These changes have been accompanied by the removal of the Australian Wheat Board’s monopoly on domestic marketing, greater flexibility in export selling options, and widespread use of the futures markets by industry participants. Taken together, these developments construct significant opportunities for grains growers to move out of the production and sale of bulk grains, and into specific market niches where increased returns are available.

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For regional development practitioners, these kinds of opportunities can be translated into gains at the regional level via strategies of rural cooperation and marketing. Over the past decade a number of regionalbased grains co-operatives have been established in the Eastern Australian wheat belt. In most cases these have involved grain growers choosing to pool their output within co-operative vehicles with the intention of generating viable quantities of specialist output, and thus generating higher returns.

REGIONAL IDENTITY For some primary products, it is also possible to add value through strategies that seek to embed regional identity within particular commodities. Obviously some products are more amenable to the attachment of regional identity than others. In agriculture, wine provides the best example of a differentiated product with highly recognisable regional attributes. Over the past decade however the concept of regional attachment has widened progressively to cover a greater breadth of food products. The example of Ilabo lamb (Ilabo is in the Southern Tablelands of NSW) provides a model of how regional identity can be attached to a food product with traditionally minimal regional branding. The question of scale is central to regional identity strategies. Because of the generally small size of local governments within nonmetropolitan Australia, it is frequently the case that collaboration is required for the establishment of regional identity. In Central West NSW for instance, three local government areas in the vicinity of Orange co-operated to build a regional food and wine identity. More ambitious still, in Western Victoria the three local governments of Greater Bendigo, Loddon and Gannawarra have developed a regional marketing strategy under the umbrella identity of ‘The New Mediterranean’. VA L U E A D D I N G Value adding is often promoted as a means of generating regional income. In general, there are sound economic grounds for promoting the value adding of primary commodities. In agriculture, whereas trade in bulk commodities has grown only slowly over recent years, global trade in processed foods has been rapid (in the 1990s, it grew at 14.5 per cent in real terms per annum).39 Value adding can also reduce production vulnerability, by lessening regional reliance on bulk, undifferentiated products. Furthermore, it is not the case that

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value-adding strategies need necessarily involve only large companies. Analysis of the Australian food processing sector indicates that much production is in the hands of small and medium-sized enterprises, often run as family businesses. Nevertheless, the extent to which value can be added to primary products within their production regions varies considerably between different commodities and regional environments.

6

SUNRISE INDUSTRIES: ENGINES OF REGIONAL GROWTH?

Terms like the ‘new economy’, the ‘knowledge economy’, the ‘information economy’, the ‘digital revolution’, ‘emerging industries’, ‘high tech’ and ‘sunrise industries’ are all used by the media, government and business leaders to identify a new stage in the economic development of Australia. This stage promises new types of employment in new types of industry, to replace the jobs and incomes lost by the old economy. The terms identify different, but overlapping, aspects of economic change in Australia. A major characteristic of the new industries and jobs is that they are heavily based on the development, transmission and application of new knowledge — about products, services, markets, technologies and management. Knowledge, learning and innovation are central to the concept of the ‘knowledge economy’. However, some writers apply the term to all industries that use knowledge, others confine it to those which use ‘new knowledge in order to create more new knowledge’,1 while some use the term to describe the whole economy. The Commonwealth Department of Industry, Tourism and Resources, for example, defines a knowledge-based economy as ‘an economy in which the production, distribution, and use of knowledge is the main driver of growth, wealth creation and employment across all industries’.2 They consider that in a truly knowledge-based economy all sectors are knowledge-intensive, not just those associated with high technology industries. The management of this knowledge has increased the importance of information services in the economy, giving rise to the term ‘information economy’. The development and management of information has in turn been greatly assisted by the application of computing technologies — the ‘digital revolution’.

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Because many of these industries are new they are called ‘emerging’ or ‘sunrise’. However, not all sunrise industries are high technology, and not all are new. Tourism, for example, is a sunrise industry because of its rapid growth in recent years, but it is neither high technology nor new. The growth of new industries, and the decline of old ones, is uneven in its regional impact. Some regions gain jobs and others miss out or even lose employment. In the United States writers like Kotkin describe how the digital revolution is reshaping the economic and social geography of that country.3 Is something similar happening in Australia? What are the sunrise industries of the Australian economy? Where are these industries located, and why? Will new industries simply add to the dominance of Sydney and Melbourne, and further disadvantage regional and rural Australia? Can regional developers influence where new industries grow? This chapter examines these questions. First, however, we examine the old manufacturing economy, and the extent to which it still has an important role in regional development.

THE ‘OLD’ MANUFACTURING INDUSTRIES A common view in Australia is that manufacturing is dying. This can be an empirical observation, based on the loss of employment in manufacturing since the 1970s. It can also be a theoretical observation, based on the belief that manufacturing is part of the ‘old’ economy and that it is not significant in a post-industrial world in which services are the engine of growth. Both these views are incorrect. It is true that employment in manufacturing has declined, from 1.278 million in 1978 to 1.141 million in 2000. It is also true that the share of manufacturing in national GDP has declined, from 18.6 per cent in 1978 to 13.0 per cent in 2000. Yet over the same period the value of manufacturing output in Australia (in constant prices) increased from $51.0 billion to $75.9 billion.4 Furthermore, the real growth of manufacturing is underestimated by these figures, because some work that in the 1970s was carried out within manufacturing establishments is now undertaken by firms in the service sector, in a range of activities from cleaning to maintenance, accounting, R&D, and legal services.5 The view that manufacturing is no longer important in postindustrial economies is not borne out by the recent experience of developed countries. Australia in fact has a lower share of GDP

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produced by the manufacturing sector than most developed countries, as well as a lower rate of manufacturing growth in the 1990s, and some see this as a source of weakness rather than strength.6 O’Connor argues that manufacturing ‘still lies at the heart of the value-adding process that generates income and wealth’,7 while National Economics contends that ‘advanced manufacturing processes are the vehicle in which new technologies, skills and experience are introduced into an economy, which are then dispersed over other manufacturing and service industries to lift economy-wide productivity’.8 Fingleton, a former editor of Forbes magazine, argues that in the US modern manufacturing generates more jobs, higher wages and more exports than post-industrial services.9 Manufacturing is also a major source of the growth of the service industries of the post-industrial economy.10 O’Connor writes that: The post-industrial perspective could justify the closure of factories and the reduction of manufacturing as services were expected to create jobs. In some areas such as tourism and personal services that might be so. In parts of finance too, new products have emerged that add value directly as a service. However, most service sector activity is in some way part of the process of making things. It may begin the process (with market research and industrial design), be involved with the messy stages of assembly (process engineers, material scientists, structural engineering), help again in marketing (advertising) and distribution (logistics) and have a say in the effect of the product (environmental management), or negotiate regulations about its sale or use (legal firms). This understanding of the modern way of creating value has a very special implication for the development of regional and national economies. Rather than imagining that manufacturing does not matter any more and that services will fill the gap created by its demise, this perspective recognises that only where manufacturing has been nurtured will the service jobs emerge.11 In the view of many experts, therefore, manufacturing still matters, and is still an important component of many regional economies. Since the 1970s manufacturing in Australia has undergone a major process of restructuring. This has been caused by a number of factors, mainly the combination of low productivity (in turn the result of dependence in the 1950s and 1960s on a small and pro-

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tected domestic market), reduced tariff protection and increased international competition after 1974. Other factors include the availability of better investment opportunities in minerals, energy, office construction and tourism, and the growth of global supply chains, which make it possible for some stages of production to be located outside Australia. The response of manufacturing firms has been to rationalise and consolidate production in fewer plants, invest in new technology to raise productivity, shift capital to more profitable activities, or shift production to other countries.12 The effects of this restructuring on Australia’s regional economies depend partly on the level of industrialisation they had achieved by the early 1970s. The post-World War II growth of manufacturing was concentrated in Sydney, Melbourne and Adelaide, and these cities therefore experienced the largest absolute and proportional losses in employment.13 Manufacturing restructuring also affected the three steel cities of Newcastle, Wollongong and Whyalla, two of which were also shipbuilding centres, and a number of smaller regional cities and towns scattered across Australia, all of which have experienced increasing levels of unemployment and rising proportions of disadvantaged households.14 Brisbane and Perth, on the other hand, had failed to develop the industries that were now losing jobs, and with their strongly growing State economies were able to increase manufacturing employment. In fact regional economies dominated by export industries, like Western Australia, were boosted by the reduction in tariff protection because it lowered the costs of these industries.15 Despite this restructuring there are only limited signs of a shift in the composition of manufacturing towards more skill-intensive and higher value products. Apart from a decline in the share of output from textiles, clothing and footwear, and a smaller rise in output share from the metal products, and the food, beverage and tobacco industries, the shares of each subdivision of manufacturing remained fairly stable through the 1980s and 1990s.16 The share of business sector value-added contributed by high technology industries in 1996 (0.9 per cent) was one-third the OECD average, and the share from medium-high technology industries (3.2 per cent) was half the OECD average.17 This failure to transform the composition of production means that Australian manufacturing continues to be concentrated in low- and medium-technology industries, many of which are mature or declining. As a consequence, Australia imports a higher

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percentage of high and medium technology-intensive manufactured products than the OECD average, such as office and computing equipment, chemicals, communications equipment, motor vehicles and machinery, and is missing out on the higher incomes and skills generated by the newer industries. These industries manufacture the higher value, knowledge-based products that are the fastest growing in world production and trade. Australian manufacturing also lags behind other developed countries in investment in R&D and in business expenditure on innovation. On the other hand, National Economics believes that the major manufacturing production regions in Australia are being transformed. The Newcastle (NSW) region is developing service-based industries such as tourism, but manufacturing remains central to the region’s future, in areas such as aluminium, metals and engineering, shipbuilding, energy technologies, and a reconstructed steel industry. Wollongong (NSW) is seeking to diversify from steel into engineering and advanced manufacturing, while Gladstone (Qld) is pursuing new energy and mineral processing industries. North and western Adelaide is seeking to establish a base in advanced manufacturing, Fremantle–Kwinana (WA) is developing fabrication and maintenance facilities to service the State’s resource projects, while Ipswich (Qld) is targeting the aerospace industry. Meanwhile, Melbourne appears to be consolidating its position as the dominant manufacturing city in Australia, with 17.3 per cent of its workforce employed in this sector in 1996, compared with Adelaide (15.6 per cent), Sydney (12.8 per cent), Brisbane (12.0 per cent) and Perth (10.9 per cent).18 Melbourne’s advantages over Sydney as a location for manufacturing include lower costs for industrial land and workers compensation premiums, a possibly better transport infrastructure, strong research and development institutions, and the pro-business policies of the Kennett Government from 1992 to 1999. The city’s main disadvantage is its reputation for union militancy.19

MAKING C ARS The automotive industry provides a case study of an ‘old’ manufacturing industry that has been transformed. The first Australian motor vehicle was built in 1897.20 The industry developed in the early 1900s making bodies and assembling cars from imported parts, and in 1918 Holden Motor Body Builders was established in Adelaide.

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After the end of World War II the Federal Government invited firms to manufacture a complete motor vehicle in Australia, and the first to produce a local car was General Motors-Holden, formed through the takeover of Holden by the US firm General Motors, in 1948. They were followed by Ford, Chrysler, Volkswagen and British Leyland, operating under government policies that protected them from imports. Volkswagen ceased production in 1968 and British Leyland in 1974, but these companies were replaced by Toyota and Nissan who established manufacturing plants in Melbourne. Mitsubishi bought the Chrysler factory in Adelaide in 1980. The industry was heavily protected from international competition, had high cost levels and low productivity by world standards, and by the 1980s exports had almost disappeared. Despite this protection, imports increased their share of the domestic market from 8 per cent in 1965 to 23 per cent in 1975, and changes in the structure of the global automotive industry put increasing pressure on Australia to restructure its local industry. Under a series of Federal Government plans from 1979 onwards tariff protection was steadily reduced, import quotas abolished, the local content scheme abandoned, and incentives provided to invest, innovate and export. The governments of Victoria and South Australia also provided incentives for manufacturers to invest in new production capacity. These policies exposed the industry to greater import competition (although the decline in protection was cushioned by the fall in the value of the Australian dollar which made imported vehicles more expensive), but also assisted it to adjust to this competition. The result has been a major transformation of the industry which has gone from five manufacturers producing 13 models at eight plants in 1985 to four manufacturers producing five models (and derivatives of these models) at four plants. Despite import competition, total vehicle sales in 2002 were expected to be nearly double the level of the previous decade, while exports now account for more than 30 per cent of production compared to less than 10 per cent a decade ago. Productivity and quality have both improved significantly, R&D expenditure as a proportion of sales is double the average for the manufacturing sector as a whole, and the industry has a growing international reputation for its tooling and design services. However, this successful restructuring has been achieved at the cost of a considerable loss of jobs, with total employment in the motor vehicle and parts industry falling from 77 485 in

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1976–77 to 54 487 in 1999–2000. There are still considerable problems in the components industry, and concerns over its ability to meet the needs of the vehicle manufacturers.21 Restructuring of the automotive industry has led to a greater geographical concentration of production. Since 1980 General Motors has closed its plants in Sydney and Brisbane, while Ford closed its Sydney plant in 1994. The four producers now manufacture complete vehicles in Melbourne and Adelaide, and have additional engine, stamping or casting plants in Melbourne, Geelong (Vic) and Adelaide. There are also more than 200 firms producing automotive components (down from a peak of about 500), many in Melbourne and Adelaide but some in Sydney, Geelong, Ballarat (Vic), Wodonga (Vic), Taree (NSW), Launceston (Tas) and Toowoomba (Qld). The vehicle producers source nearly three-quarters of their component supplies from these firms. Table 6.4 shows the extent of concentration of vehicle and component manufacture in Victoria (Melbourne and Geelong) and South Australia (Adelaide) in 1999–2000. This story of the automotive industry illustrates several themes. These include the pressures on Australian manufacturing, both external and internal, the extent of restructuring, and the outcomes in terms of increased production, productivity and exports, although at the cost of a significant loss of employment. It shows how an old industry has become a potential emerging or sunrise industry based on the application of knowledge, innovation and new technology.22 It also illustrates the important role of national industry policy in assisting the process of successful adjustment. While there is little that local or regional development agencies can do to encourage investment by the major producers in large industries like the automotive industry, they can seek to maximise the multiplier effects to their region of a major manufacturer by assisting local firms to gain supply contracts for goods and services. State governments have more scope, and can attempt to influence the investment decisions of firms to maximise the benefits to their state.23 This example also illustrates the way restructuring produces increased geographical concentration in an industry, as manufacturers consolidate their operations at the most efficient locations. Finally, it shows that Australian manufacturing is not disappearing and still matters, particularly to the economies of cities like Melbourne, Adelaide and Geelong.

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SUNRISE INDUSTRIES Sunrise industries are those that have either experienced rapid growth in recent years, or are considered to have growth potential. There is no definitive list of these industries for Australia, and the one below is compiled from several sources.24 These are mostly relatively new industries, but some are old ones that have entered a new phase of expansion, such as tourism, the food industries or the automotive industry. A U S T R A L I A ’ S P OT E N T I A L S U N R I S E I N D U S T R I E S

Tourism Food industries Viticulture Aquaculture Mining services Environmental industries Finance

Research and development Pharmaceuticals Health care Lifestyle goods and services Biotechnology Nanotechnology/ microtechnology Business and professional services

Education and training Information and communication technologies and services Advanced manufacturing (including automotives and parts) They are all heavy users of knowledge and of information and communication technologies. They are of interest in regional development because of their growth potential, and because their capacity to export goods or services outside their region makes them drivers of regional growth. IBIS World, an economic and business research service, compiles an annual list of the 50 fastest growing industries, and this is summarised in the box below. Some of these may be fast growing only temporarily, but the list does show that high growth is not confined to high technology or new economy industries. T H E D I S T R I B U T I O N O F T H E 5 0 FA S T E S T G R OW I N G I N D U S T R I E S , 1997–2001

Agriculture, agricultural processing and services to agriculture (7 industries) Fishing (1 industry)

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Mining, mineral processing and energy (7 industries) Manufacturing (7 industries, 2 in the supposedly dying clothing industry); Wholesale and retail trade (4 industries) Transport (1 industry) Communication services and media (4 industries) Finance and insurance (10 industries) Property and business services (5 industries) Cultural and recreational services (4 industries) SOURCE

IBIS World (2002) 50 Fastest Growing Industries, IBIS World Pty Ltd, Sydney.

TO U R I S M Tourism became a boom industry in the 1980s, with international visitor arrivals accelerating rapidly, particularly as the Japanese and then other Asians discovered Australia as a tourist destination.25 In 2000–01 the tourist sector accounted for 4.7 per cent of gross domestic product and employed an estimated 551 000 people, or 6 per cent of the national workforce. International visitors spent $17.1 billion on goods and services in Australia, representing 11.2 per cent of Australia’s export earnings. Tourism has been the nation’s largest export industry since the late 1980s. Domestic tourists spent three times this amount, and combined the two groups make a significant contribution to the economies of the capital cities and a number of regional areas.26 If the indirect economic effects of tourism (the income and employment generated by the expenditure of those who directly gain their income from tourism) are included, the Bureau of Tourism Research estimates that in 1997–98 the industry contributed just over 8.5 per cent of national GDP, and generated 853 500 jobs, or 680 700 equivalent full-time jobs.27 Since many of the things that attract tourists relate to the natural environment or to cultural heritage and are located outside the capital cities, tourism is seen as one of a limited number of potential growth industries in much of regional Australia.28 Table 6.1 presents data on expenditure by domestic and international visitors in 1998 for all regions in which the combined expenditure exceeded $200 million. The data for international and domestic expenditure are not strictly comparable, but provided they are treated as estimates they can be used to present a picture of the

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regional distribution of tourism in Australia. A more significant complication is that international visitors include not only those on holiday, but also those visiting friends and relatives (VFR), business visitors, students, and people visiting for medical treatment and other reasons.29 The expenditure data therefore relate to visitors rather than to tourists as strictly defined, but the boundaries between the different categories of visitor are blurred, and from the viewpoint of regional development a visitor is a visitor, regardless of purpose.30 There are several patterns in the tourist expenditure data shown in Table 6.1. The expenditure per visit for both types of visitor is higher in the capital cities and resort-style destinations, and low in many rural regions. Sydney is the dominant visitor destination, especially for international visitors, which is not surprising given its international profile, its attractions,31 and its place as Australia’s main gateway for air transport. International visitor expenditure is heavily concentrated in the capital cities, and in the four regional areas of the Gold Coast, the Sunshine Coast, Tropical North Queensland and Central Australia.32 These latter destinations are all heavily marketed, high-profile tourist destinations. Domestic visitors are also concentrated in the capital cities and coastal regions, but they are dispersed over a much wider number of regions than are international visitors. They are the most dispersed in Queensland and the most concentrated (in the capital city) in South Australia and Victoria. Domestic visitors are therefore of much greater significance for tourism in most non-metropolitan regions than international visitors. Table 6.1 Estimates of expenditure by domestic overnight visitors and international visitors, 199833

2 2 1 1

977 557 708 452 994 687

Expenditure per visit ($)

($m) 5 559 3 908 2 305 1 899 1 664 1 263

361 417 542 361 445 622

International visitors Expenditure per visit ($)

Sydney, NSW Melbourne,Vic Gold Coast, Qld Brisbane, Qld Perth,WA Tropical North, Qld

Domestic Visitors

Total expenditure ($m)

1. 2. 3. 4. 5. 6.

Total expenditure

Total expenditure ($m)

Region

2 582 1 351 597 447 670 576

1 202 1 374 697 710 1 376 818

SUNRISE INDUSTRIES: ENGINES OF REGIONAL GROWTH?

7. Adelaide, SA 8. Sunshine Coast, Qld 9. Canberra, ACT 10. South Coast, NSW 11. Hunter, NSW 12. Mid-North Coast, NSW 13. Central West, NSW 14. Northern Rivers, NSW 15. Darwin, NT 16. New England/ North West and Outback, NSW 17. Geelong and Peninsula,Vic 18. Holiday Coast, 34 NSW 19. Alice Springs, Macdonnell and Petermann, NT35 20. Northern, Qld 21.Western,Vic 22. South West,WA 23. Greater Hobart, Tas 24. Illawarra, NSW36 25. Hervey Bay/ Maryborough, Qld 26. Murray, NSW 25. Kimberley,WA 27. Snowy Mountains and Capital Country, NSW 28. Central Coast, NSW 30. Fitzroy, Qld 31. Darling Downs, Qld 32. High Country, Vic37

• 117

1 226 1 145

1 032 1 056

434 439

194 89

696 494

737 719

622 689

332 266

115 30

552 464

639 590

575 573

238 271

64 17

833 202

516

502

230

14

398

443

408

218

35

208

430 415

380 397

726 206

50 18

319 367

402

371

147

31

708

396

381

322

15

194

381

251

728

130

286

365 361 354 346

319 350 338 298

398 206 264 382

46 11 16 48

357 111 242 619

318

254

195

64

1 304

309 305 293 287

245 297 278 355

229 220 666 280

39 8 15 8

247 322 244 213

286

279

193

7

276

273 253

245 239

253 202

28 14

250 511

230

221

203

9

400

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

Tourism has a number of attractions for regional economic developers, although it needs to be recognised that not all regions have tourism potential. It is the most decentralised of the sunrise industries, builds on the natural environment and cultural heritage attractions of many regional areas, is labour intensive, and can create jobs not only directly serving tourists but also in a range of related service, construction and manufacturing industries. It helps to diversify local economies and support the existing infrastructure, and can pay for the development of new infrastructure that in turn may help the establishment of other industries. Cairns provides an outstanding example. Originally a service centre for mining, timber, agriculture and fishing, the growth of national and international tourism has enabled Cairns to become a major centre for air transportation. In turn this has made possible the export of high quality tropical horticultural produce, a role as a base for flyin fly-out mining operations, a location for conventions, and a potential role in education and training for overseas students. Like several other tourist and retirement regions, Cairns is now using its infrastructure and lifestyle attractions to develop knowledge-based industries, and the city’s economy is no longer dependent on the health of the agricultural and mining industries of the region. The relationship between city and hinterland may in fact have been reversed; Cairns is now a growing market for horticultural products from its hinterland, while the hinterland is trying to attract more tourists to visit during their stay in Cairns.38 However, the conjunction of events that created Cairns as a tourist destination, including the role of Japanese investment in financing the infrastructure and the role of the Cairns Port Authority and Qantas in developing Cairns airport as an international hub, is unlikely to be repeated elsewhere in Australia.39 It is important not to overstate the flow-on effects of tourism on other economic sectors in regional and rural Australia. Because much of what tourists consume or purchase is produced outside the tourist region, income flows out to the places that manufacture or produce these items. To use Cairns as an example again, it has been estimated that each $100 million dollars of tourist expenditure in the region increases Gross Regional Product by only $82.5 million dollars. The same expenditure increases employment by 3100 jobs, of which 1400 are in the recreation, accommodation and personal services sector, 700 in the wholesale and retail trade sector, 500 in transport, 300 in manufacturing and 200 in the finance sector.40

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Table 6.2 Estimated tourism employment created by $100 million of tourist expenditure, by industry for selected regions, 199841 Industry Perth, WA Accommodation, cafes 330 and restaurants Wholesale and 205 retail trade Cultural and recreational 107 services, personal and other services Education and health 80 and community services Transport and storage 98 Manufacturing 63 Other 10 893 Total employment42 Percentage of jobs in accom- 60 modation etc/wholesale /retail trade sectors Total tourism 25 300 employment44 Tourism employment 4.3 as a percentage of regional employment

Number of Jobs Katherine, South Geelong, NT Coast, Vic NSW

South East, SA

423

342

333

428

202

182

286

235

144

83

105

67

10

14

38

8

106 67 10 962 65

28 48 7 704 74

38 124 28 952 65

17 76 9 43 840 79

750

6 200

4 000

1 500

9.3

14.1

5.4

5.6

Other estimates of the employment generated by tourism come from studies by the Bureau of Tourism Research. These estimate only the direct employment effects of visitor spending, and exclude the flow-on effects included in the Cairns data. They are therefore not comparable. The Bureau’s estimates are presented in Table 6.2, which shows that regions vary in their dependence on tourism-related employment, in their ability to generate employment from the same level of tourist expenditure, and in the distribution of these jobs between sectors of the economy. Cities like Perth and Geelong, which produce more of the goods and services consumed by tourists, are able to capture more employment from tourist expenditure than non-metropolitan regions like the South-East of South Australia or the South Coast of NSW, where jobs are concentrated in the accommodation and retail trade sectors. They also have a wider variety of

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visitors, including those visiting for education and conferences. The South Coast region has the smallest ratio of jobs generated to expenditure. This results from the leakage of expenditure on goods produced outside the region, and the popularity of private rental accommodation, which generates little or no direct employment. Katherine (NT), on the other hand, has a high level of expenditure on transport, and expenditure on organised tours and cruises of the Katherine Gorge raises the number of jobs generated in the entertainment sector.

R E G I O N A L TO U R I S M P O L I C Y From these and other studies we can draw some policy guidelines for the development of tourism in regional Australia, defined as all regions outside the major cities. Regional income and employment can be generated from tourism by increasing the number of visitors, by increasing the expenditure per visit, and/or by reducing the leakage of tourist income outside the region. Except for a few regions with high profile attractions like the Great Barrier Reef or Uluru, most regions should concentrate on the domestic market to increase their visitor numbers. This may also be the best way to encourage international tourists. Another study by the Bureau of Tourism Research examines the factors that influence international visitors to visit rural regions in Australia, and finds that the most common reason is to visit friends or relatives (over 30 per cent of responses), followed by recommendations from friends or relatives, a desire to experience the Outback, the visit is part of a pre-paid tour, and to experience nature-based outdoor activities.45 This suggests that promoting the attractions of rural Australia to resident Australians may be one of the most effective ways of increasing international tourist visitors to these regions, as the residents will in turn influence the VFR group of tourists who are the most likely international tourists to visit rural areas.46 Equally important is ensuring that tourists are satisfied with their visit and will recommend the region to others. Surveys of domestic and international visitors show that the main areas of dissatisfaction are transport and the accessibility of the region, attractions, signage, the range and quality of accommodation, shopping facilities and merchandise.47 The Internet has also become a major way tourists plan their travel, and regions must be able to provide a high quality web-based service.48 Increasing the number of tourists beyond the infrastructural,

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social and environmental capacity of the region is likely to be selfdefeating. The quality and the reputation of the area may suffer and those tourists attracted may stay for shorter periods, so reducing total expenditure. While most tourist destinations in Australia can absorb more visitors, a sensible strategy for all regions is to try to increase expenditure per visit. This involves increasing the range of activities for visitors, and promoting or developing local shopping and entertainment services.49 Another strategy is to attempt to reduce the leakage of tourist spending by developing local suppliers of goods and services, but this is difficult in small and isolated economies. However, the promotion of local produce, including food, wine and locally manufactured products, is a growing trend, and one with potential long-term benefits. This strategy involves linking tourism to other sectors of the regional economy, a task particularly suited to a local or regional economic development agency.50 It is also vital to manage the impact of tourism to ensure that the environment that attracts visitors to regional areas is protected. Regions pursuing tourism as a development strategy need to be well aware of some of the problems associated with the industry. Much of the employment generated is casual, unstable, seasonal and low paid. The major non-capital city tourist regions of Australia have high rates of unemployment, often blamed on the migration of unemployed people from other regions but also likely to be related to the nature of the tourist economy. And because the bulk of employment created by tourism is for females, the ability of the industry to provide alternative jobs for men losing employment in agriculture, forestry or mining is limited. Large-scale tourist development also raises land and house prices, pushes up the cost of living, brings a significant transient workforce, and increases crime, prostitution and other social problems. It requires considerable capital from outside the region, and is likely to lead to an industry dependent on outside companies and skills and not controlled by local people. Much of the income generated by tourist spending flows out of the region to pay for imported goods and services, as repayment of borrowed capital, as profit for external owners, and through the repatriation of savings by temporary workers. Large-scale tourist development also threatens the quality of the environment.51 Regions therefore need to carefully decide on the type and scale of tourism they prefer, and on the market they can compete in. There is a growing variety of forms of tourism for them

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to consider, including special interest tourism, rural tourism, wine tourism, adventure travel, ecotourism, cultural and heritage tourism, indigenous tourism, trails, shopping tourism, urban tourism and event tourism.52 However, one of the keys to success in using tourism to develop a region’s economy is not to treat it as a separate industry, but to integrate it with other sectors of the regional economy so as to maximise the economic benefits. Another is to build on the concept of the region and its identity, explored in Chapter 3, by using the cultural heritage, history, landscape, foods and other produce of the region to provide visitors with a distinctive experience. This is not always easy in Australia, where regional identities are not sharply defined, but it is an emerging strategy in many regions.53

PRODUCER SERVICES Services are differentiated from manufacturing in that they do not produce a commodity, or the material content of the commodity produced (such as a report, a meal or a design) is a small part of its value.54 These services consist of wholesale and retail trade, accommodation, cafes and restaurants, transport and storage, communications, finance and insurance, property and business services, government administration and defence, education, health and community services, cultural and recreational services, and personal and other services. They account for 67 per cent of national economic output and employ 74 per cent of the workforce. However, services differ in their rates of growth and in their claim to be sunrise industries. For example, between 1989–90 and 1997–98 communication services grew in output at an average annual rate of 9.2 per cent, and property and business services at 4.6 per cent, while retail trade grew at 2.9 per cent and education at only 1.7 per cent. Consumer services provided to the final consumer (individuals and households) have generally grown more slowly than producer services provided to other businesses. The latter include services like accounting, legal services, design, technical services, R&D, marketing, advertising, financial services, business management services and public relations.55 Producer services are important in regional development not only because they are growing rapidly, but also because they can export their services to other regions and so earn income for their own region. In this way they can act as drivers of regional economic growth in the same way as agriculture or manufacturing. They also provide many relatively well-paid jobs for professional people. Consumer services, on

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the other hand, and with a few significant exceptions, are sold locally and so follow growth rather than create it. Furthermore, the location of producer services is highly concentrated, and their growth benefits a relatively small group of regions. While consumer services are located where consumers live or work, and therefore roughly follow the distribution of the population, producer services are concentrated in the major cities. Table 6.3 compares the distribution of all jobs with that of jobs in three sectors that provide producer services. The table shows that these jobs are much more concentrated in Sydney and Melbourne than the overall distribution of employment. Brisbane and Hobart have roughly their share of employment in these producer services, Adelaide has less than its share in two of them, and Perth has more than its share in two of them. The rest of Australia has considerably less than its share of these growing industries. The reasons for this pattern of concentration are well known.56 The major customers for producer services, and especially the large national and international firms and the finance sector, are concentrated in Sydney and Melbourne, the dominant business centres of the nation. Their role as customers has increased with the growth of outsourcing of functions previously undertaken internally. Along with customers, the higher level and less routine producer services also need the ability to access and exchange information; they benefit from clustering together in places which are information-rich, and which are well connected to national and global flows of information and the people that carry it. Sydney and Melbourne have the best-developed communications infrastructure, and are the first to get new communications technologies. They are the centres of national and international transport and communication networks. And while a lot of information can be accessed electronically, much depends on personal contacts, or is generated as businesses and other institutions work together to solve problems and innovate. Personal networking is still an important strategy for gaining business, and ‘face-to-face contact remains a critical ingredient in the construction of business trust and alliances’.57 The advantages of proximity and agglomeration are therefore still a powerful concentrating force. These advantages are reinforced by the growth of the project team approach in service provision, in which an integrated package of services is developed by a group of collaborating firms. Furthermore, as Sydney and Melbourne have the largest number of specialist producer service firms, and the only critical mass in the country in some of them, this naturally attracts others.

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Table 6.3 The metropolitan distribution of producer services, 1996 City

Sydney Melbourne Brisbane Adelaide Perth Hobart Rest of Australia SOURCE

Share (%) of national employment in: All jobs Services Finance and to business property 22.1 26.9 33.3 19.0 23.8 25.2 8.7 9.0 8.2 5.6 6.0 4.7 7.6 8.8 6.1 1.0 0.9 1.2 36.0 24.6 21.3

Media and publishing 36.1 19.9 8.1 4.3 9.2 0.6 21.8

O’Connor, Stimson and Daly 2001 Australia’s Changing Economic Geography, p 119.

Sydney has captured more producer services than Melbourne (Table 6.3). Sydney’s advantages are that it is the headquarters of 49 per cent of the nation’s top 500 companies, and it has become the financial centre of the country with over three-quarters of the head offices of all banks. These are all major customers for producer service firms. It is the principal international airport and therefore the gateway to Australia for half the nation’s overseas visitors. It has the strongest Asian connections of any Australian city, and has 63 per cent of the Asia-Pacific regional headquarters based in Australia. It has been perceived, possibly wrongly, as less conservative and more dynamic than Melbourne and a more attractive living environment for those who can afford it. For the type of people involved in the more creative producer services, Sydney is seductive.58 Of the other capital cities Adelaide, like Hobart, has suffered from the restructuring of its manufacturing base. It lacks a global role, has slow population growth, and has lost producer services as it has become more of a branch economy of Melbourne and Sydney. Brisbane, however, demonstrates that sustained population and economic growth is not sufficient to attract producer services, many of which are supplied from Sydney. On the other hand, producer services in Perth have benefited from the growth of Western Australia’s mining industry, and from the outsourcing of services in that industry. Outsourcing through commissioning, contracting and subcontracting by mining companies in Australia accounts for over a quarter of total company expenditure, and in 1996–97 more than 60 per cent of this work was undertaken in Western Australia, much of it by firms and mining professionals located in Perth. A number of these

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firms are now exporters of mining services to other countries, and Western Australia is now claimed to have a world class mining services sector.59 The account above seems to provide little scope for some of the smaller capital cities and the regional centres to attract producer services. While some of these cities, like Wagga Wagga (NSW) or Shepparton (Vic), have been successful in developing a regional service role, this has been more as providers of administrative, retail, education and health services than of business and financial services. Kalgoorlie (WA) illustrates another problem for regional cities. It has historically been a breeding ground for new mining service companies, but some of these firms relocated to Perth as their markets grew.60 Consequently these cities are exporting business to firms in the major capital cities, and missing out on the professional employment that this business represents. Birrell and O’Connor have reviewed the role of regional Australia in employment in business, finance and insurance services, and argue that regional cities have great difficulty competing with the advantages of the metropolitan centres, and have difficulty attracting and retaining skilled staff. They conclude that: …governments will have to do more than ensure that the relevant telecommunications infrastructure is in place in regional centres if business service firms are to flourish in these places. Major investments in education and research and development, along with incentives for the creation and expansion of firms will be necessary. Education and training needs to be boosted so that talented young local people (the kind of people most likely to want to work in a regional setting) are encouraged.61 As agglomeration is vital in creating the critical mass that supports competitive producer services it is unlikely that such efforts, if they are undertaken, can succeed in more than a small number of regional centres. The smaller capital cities like Adelaide, and possibly some of the regional cities, have a better chance of attracting those producer services that are the least dependent on face-to-face contact with customers and other service firms. Such services include basic and applied research, software development, programming and industrial design. In Europe and the US some of these activities are dispersing

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

to smaller centres which provide a quality of life that attracts and retains skilled workers. Kotkin terms places like Boulder, Colorado and Jackson Hole, Wyoming, ‘Valhallas’: ‘…rural areas, usually with significant urbanlike amenities and appealing scenery, where knowledge workers can enjoy a pastoral paradise yet remain plugged into the burgeoning information economy.’62 However, the United States has a much larger economy, stronger pressures to decentralise from the major cities, a greater variety of medium-sized towns in which to locate, a greater dispersal of research institutions, a greater variety of attractive inland environments, greater differences in wages between regions and localities, stronger local government, and better transport and communications infrastructure than Australia. In Australia there is little evidence of the decentralisation of producer services; industrial design services, for example, appear to have their strongest cluster in Sydney.63 Nevertheless, in 2002 the CSIRO was developing a proposal to enable experts in regional cities like Bathurst (NSW) and Benalla (Vic) to work in multidisciplinary teams to provide a range of specialist services nationally and internationally, through the application of sophisticated information technology.64

C ALL CENTRES AND B ACK OFFICES Perhaps the best opportunities for the smaller capital cities and regional cities to attract activities that export services to other regions is in office functions undertaken through telecommunications. These range from call centres (or customer contact centres) which deal directly with customers in businesses like insurance, banking, financial services, telecommunications, airline travel, consumer goods support, government services and telemarketing, to ‘back’ and ‘middle’ office facilities which provide finance, accounting, human resources, payroll, purchasing and supply services for the rest of the company and for other companies. Call centres have grown rapidly in Australia in the last few years, from 550 centres in 1998 to 3900 centres in 2001. In 2002 some 69 per cent of all customer contact with companies was through call centres, and the industry employed about 225 000 people.65 In the United Kingdom about one quarter of call centres are located in the South East, in and around London, while the rest are widely distributed, with strong concentrations in Scotland and Northern England.66 In Australia, on the other hand, call centres are concentrated in New South Wales (i.e. Sydney), with 48 per cent of

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market share, and Victoria (i.e. Melbourne), with 25 per cent. Regional Australia has only 9 per cent of market share, although there has been strong growth in Tasmania. Industry analysts argue that while regional call centres can be up to 10–15 per cent cheaper to operate than metropolitan ones, this advantage may be outweighed by a lack of sufficient qualified staff (the labour market area needs a population of at least 20 000 to provide 200 potential call centre staff), unreliable electricity supply, and poor quality telecommunications infrastructure.67 Furthermore, wage differentials within Australia are not nearly as great as in many other developed countries, and companies can lower their costs by locating in the outer suburbs of the major cities rather than moving to non-metropolitan areas. This means that the smaller regional towns and cities are unlikely to attract and retain call centres. The role of call centres in customer contact and marketing is expected to continue to grow rapidly. Call centres are attractive for regional developers because they can create significant numbers of jobs, and train staff in transferable skills. Their limitations are their generally low pay, lack of a career structure (although this is changing in some firms), and high staff turnover (estimated at 17 per cent a year in 2002). They do not appear to provide a base from which to attract other industries, and they are likely to move on if other locations become more cost-effective. The future of employment in call centres is also threatened by technological change, such as voice recognition software which will reduce the need for staff, and by competition from developing countries like India.68 Back and middle office functions, on the other hand, provide a greater variety of jobs, and may help to attract producer service firms to supply specialist knowledge. An example is the BHP Billiton Shared Services Centre in Adelaide, employing some 500 staff, which services the company’s Asia-Pacific operations. The advantages of an Adelaide location for BHP Billiton are believed to be lower costs for office accommodation, the availability and quality of potential staff, lower labour turnover, and the quality of life, which assists in attracting and retaining employees. These advantages are difficult for smaller regional centres to match. There are other service industries that these centres may have better prospects of developing. These all involve the principle that the disadvantages of a non-metropolitan location can be overcome if the customer moves to the service. This is the case with tourism,

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

examined earlier in this chapter. Similar industries include education, health and conventions. In North America and Europe universities are the economic base of many small and medium-sized towns and cities, but in Australia, where student mobility is limited, university enrolments are much more centralised. Even so, the contribution of the universities in Armidale, Townsville and Wollongong to the economies of these cities shows the potential of education as a driver of regional development.

A DVA N C E D M A N U FAC T U R I N G The history of industrial innovation provides examples of new industries springing up in unexpected places. Storper and Walker argue that new industries, like the aircraft industry in the United States in the early 20th century, have a degree of locational freedom in that they are not tied to existing pools of labour or existing suppliers of materials. Similarly, a number of new high technology regions have emerged in places with no previous industrial experience, such as Silicon Valley, which grew out of an agricultural region to the south of San Francisco, or the M4 region outside London.69 Could something similar happen in Australia? What new manufacturing industries are emerging in Australia, where are they emerging, and what strategies can regions use to attract or develop these industries? These are the questions examined in this section. Table 6.4 presents data on the location of employment and value added in industries which have high to medium-high R&D intensity, as classified by the OECD.70 In most cases the data show that New South Wales and Victoria have the majority of the employment and value added in these industries, but in some several other states also have a significant share. As we have already seen, South Australia has a large share of motor vehicle and parts manufacture, and the table shows that it also has a significant share of the small photographic and scientific equipment industry. Western Australia has a large share of basic chemical manufacture, while Queensland does relatively best in industrial machinery and equipment. It is not possible to obtain data by city, but Table 6.5 shows that in the industry subdivisions that contain these industries production is overwhelmingly concentrated in the capital cities, with the exception of Queensland. Advanced manufacturing industries are therefore largely metropolitan city based, but are more dispersed across the capital cities than producer services.

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Table 6.4 Employment and industry value-added of selected industries, by State, 1999–2000 Industry

NSW and ACT Basic chemical manufacture Employment (no) 3124 Industry Value Added ($m) 426 Medicinal and pharmaceutical product Employment (no) 5638 Industry Value Added ($m) 728

Vic

Qld

SA

WA

Tas

4715 659

1474 131

785 92

2165 348

np np

4599 643

1173 71

592 48

481 np

np np

Motor vehicle and part Employment (no) Industry Value Added ($m)

6534 378

27551 2292

Aircraft Employment (no) Industry Value Added ($m)

5323 516

4541 239

852 54

372 16

np np

Photographic and scientific equipment Employment (no) Industry Value Added ($m)

3986 269

3605 369

1313 56

2468 134

547 23

72 2

Electronic equipment Employment (no) Industry Value Added ($m)

10110 764

4982 413

1553 80

1626 109

1367 75

34 1

Electrical equipment and appliance Employment (no) Industry Value Added ($m)

13124 847

7830 512

3237 181

4968 365

1432 75

np np

Industrial machinery and equipment Employment (no) Industry Value Added ($m)

15198 920

15483 855

8331 510

4097 203

4437 776 280 53

NP

4320 13324 203 887

2015 650 79 37 2 0.2

= not published Australian Bureau of Statistics, Manufacturing Industry, 1999–2000 (Catalogue 8221).

SOURCE

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DEVELOPING AUSTRALIA’S REGIONS: THEORY AND PRACTICE

Table 6.5 Percentage of State employment in the capital city statistical division, selected manufacturing industries, by State, 1996–97 Industry Petroleum, coal, chemical and associated product Machinery and equipment Other manufacturing NP

NSW & ACT 89.9

Vic

Qld

SA

WA

Tas

91.7

75.2

90.2

83.4

36.9

79.3 82.6

86.4 89.7

60.3 64.9

95.2 87.6

91.0 90.2

96.4 np

= not published Australian Bureau of Statistics, Manufacturing Industry, 1996–97 (Catalogue 8221).

SOURCE

There are very few studies that examine the location of these industries. The best information is for biotechnology, an industry in which Australia is thought to have a competitive advantage internationally.71 Several States claim to be the leader in this emerging area, but the truth depends on how the industry is defined. According to a Federal Government report, in 2001 about 40 per cent of all biotechnology companies were located in New South Wales, 32 per cent in Victoria, 11 per cent in Queensland, 8 per cent in South Australia and 7 per cent in Western Australia. However, many of these companies are not classified as ‘core’ biotechnology companies, defined as those that depend on ‘exploiting intellectual property embedded in molecular, cellular and tissue biology’. The core companies, which represent the research and development heart of the industry, are concentrated in Victoria (38 per cent), followed by New South Wales (30 per cent), Queensland (11 per cent), Western Australia (9 per cent) and South Australia (8 per cent). Nearly half the core companies are involved in human health, and the rest are distributed across agriculture, food production and processing, and environment and resources. Victoria’s strength is particularly in health biotechnology, and is based on a concentration of high quality research institutes (such as the Walter and Eliza Hall Institute of Medical Research and specialist units of the CSIRO), Monash and Melbourne universities, and teaching hospitals. Western Australia’s biotechnology firms, on the other hand, have their origins in the application of biotechnology to mining, and in investment by mining companies.72 In the related medicinal and pharmaceutical industry, Table 6.4 shows that New South Wales leads in product manufacture, but much of this is by multinational corporations making products developed overseas. The two largest Australian-owned firms that manufacture products

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developed locally are CSL Limited, based in Melbourne, and Faulding, which has manufacturing facilities in Adelaide. A locational characteristic of both the biotechnology and pharmaceutical industries is the role of clusters of firms and supporting institutions such as universities, hospitals and research institutes. Like producer services, these knowledge-based industries depend on the exchange of information through partnerships and collaboration, and they therefore benefit from proximity and agglomeration. The role of clustering consequently means that these industries do not have the locational freedom suggested earlier. Their location in Australia will depend on the quality of a region’s basic and applied research, the availability of venture capital, a supply of skilled and creative people, and appropriate infrastructure. Is there a role for regional developers in these and other sunrise manufacturing industries?

R E G I O N A L B U S I N E S S S T R AT E G I E S There is a range of strategies available to regional developers to attempt to attract, nurture, expand and retain advanced manufacturing firms. These strategies can also be applied to lower technology industries and to the service sector, so this discussion is relevant to a wide range of economic activities. The section focuses on those strategies that are appropriately implemented at the local or regional level. However, they all depend on national and State levels of government also having effective industry policies. The ways in which local and regional agencies can promote regional economic development depend on an understanding of the role of the local or regional level in assisting a firm’s establishment, survival and expansion. For example, business services that need to be physically accessible, or that require local knowledge, are best provided at the local level. This particularly applies to small business advisory services, even when these services then link clients to programs provided through the Internet. Business support strategies that involve businesses working together, whether to learn from each other or to solve common problems, also depend on proximity and the trust developed through personal relationships, and are best undertaken at the local level. Programs for management or staff training, for export enhancement or for improving the use of information technology are also most effectively delivered at the local level. The OECD advises that:

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Given the variety of location-specific factors which affect entrepreneurship and the opportunities for encouraging entrepreneurship through local measures, policies which fail to take account of regional and local differences are less likely to be successful. Local initiatives have advantages such as being better able to tailor activities to needs, to concentrate resources where most required and to mobilise a wide range of actors relevant to entrepreneurship. Many important programmes to support entrepreneurship are best designed and implemented by local authorities.73

B U S I N E S S I N C U B ATO R S A business incubator is a facility designed to assist new and growing small businesses become established and profitable by providing premises, advice, services and other support.74 In the early incubators the emphasis was on simple premises and shared services to reduce costs, but over time more emphasis has been placed on the services that make incubation a business enterprise development process. The US National Business Incubation Association, for example, defines business incubation as: …a dynamic process of business enterprise development. Incubators nurture young firms, helping them to survive and grow during the start-up period when they are most vulnerable. Incubators provide hands-on management assistance, access to financing and orchestrated exposure to critical business or technical support services. They also offer entrepreneurial firms shared office services, access to equipment, flexible leases and expandable space — all under one roof.75 A United Kingdom definition adds that incubators ‘provide three main ingredients for growing successful businesses — an entrepreneurial and learning environment, ready access to mentors and investors, visibility in the market place’.76 An incubator may be a ‘stand alone’ facility ‘which does not function as a separate business unit within a larger entity’; ‘embedded’, an incubator which ‘operates as a business unit within a larger entity, such as a technology park, regional development organisation or a business enterprise centre’; or ‘networked’, operating ‘in formal cooperation with other incubators, either under common ownership, management or through common provision of services or sharing of

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information’. The concept of the incubator can therefore include technology or science parks, business and innovation centres and others, depending on the types of industries targeted. Some incubators have a strong emphasis on technology and innovation, but incubator tenants co