Economic Growth Requires Connected Regional Cities, Not Factory Floors

The once unthinkable has happened.  Ford ceased making cars in Geelong this month, Toyota and Holden will follow suit early next year.

Our economy is transitioning. Manufacturing and agriculture will remain very important but we’re moving towards a services and knowledge based economy.

Assistant Minister for Cities, Angus Taylor, said it best at our Cities Forum last week, “the service based economy is built around our cities – regional, suburban and the capitals – and our prosperity depends as much on how we build those cities, how we grow them and nurture them, as it does on the industries themselves” (Click here to read the full speech).

It’s time to focus unashamedly on the future for regional cities, which lies in building connected, globally unique services – not in propping up the creaking factory floors of the past.

It’s time to define our regional cities by what can be, rather than what was. The development of Australia’s small cities is an unexploited opportunity for the nation’s future.

Small cities have grown rapidly in the last 40 years, represent 15-20 per cent of the economy and are home to 4.5 million Australians. Many more regional Australians live close to a regional city or regional capital and depend on it for jobs, access to services and as a market or support for their businesses.

For every 100,000 Australians who choose to live in growing small cities rather than our big five capitals, an additional $50 billion will be released in the economy over 30 years in reduced congestion costs and increased consumption.

The case for developing our network of small cities as part of our national economic agenda is clear.

International evidence demonstrates nations with a network of cities tend to have higher per capita GDP.

Our key levers of economic policy – monetary and fiscal policy – are largely impotent. The reform formulas of the past are either exhausted or crushed by political division. We need to develop new ways of supporting growth in our economy.

After growing at over 4 per cent per annum and faster than our major cities in the early 2000’s, the overall growth in regional cities has fallen sharply in the last few years.This is despite the mining investment boom and the on-going high population growth experienced by cities next to our major metropolises.

The fundamental reason for this loss of growth momentum is two-fold.

First, the industrial base of older regional cities has not shifted fast enough to new growth opportunities to sustain their long-term performance.

Second, we have not sufficiently developed the local private sector in emerging regional cities – resulting in an over reliance on commuter jobs, seasonal domestic tourism and social assistance.

Over the next five years more professional services jobs will be created than in the construction sector in our regional cities. Traditional strengths such as manufacturing will shed even more workers.

Much of our past policy approach to the economic development of regional cities can be characterised as managed decline with infrastructure stimulus. Neither approach does anything to solve these fundamental issues.

It’s time to let go of a confused and often confrontational system of governance.

If we devote a fraction of previous spending allocation on emerging opportunities instead, we will get a much greater return. This means building stronger networks of firms in new industries, seeking investment and fostering a culture of ambition and entrepreneurship.

It means nurturing specialisations in high value services, technology, tourism and aged care. These industries can and should become genuine drivers of long-term growth and good local jobs.

The Government’s approach to implementing the City Deals policy is crucial to effectively change the direction of regional city economies.

Under this new policy approach Federal, State and Local Governments will collaborate with universities and the private sector to come up with unique growth deals for Australia’s cities. The Deals can include investment in infrastructure, innovation and skills or social policy reforms – whatever evidence suggests will be needed to get a city on the right track.

There are three tests to determine success of city deals.

First we must be very clear about the problem or opportunity each city needs the Deal to target. We can’t do everything through this approach, selecting one or two important opportunities for focus is critical.

The next is how creatively we can leverage existing money spent on regional cities to better effect:

• How will existing funds spent in innovation, trade and investment by the three levels of government be integrated to drive business growth in city specialisations?
• Can social services investment and skills be better designed to lift people out of unemployment and support transitions out of declining sectors?
• Can we leverage existing assets to develop a pipeline of private sector investment in infrastructure and city development?

The third is the quality of the long-term growth plan. Deals must outline what we expect to happen in a city over 10-20 years and how we expect the City Deal to positively change this.

To enable this, each Deal should set unique targets for:

• increasing growth
• increasing employment
• reducing the numbers of people relying on welfare, and
• raising median incomes.

These are the measures upon which small City Deals should be judged over time and upon which the measurement of success in wider economic policy relies.

Jack Archer is CEO of the Regional Australia Institute, Australia’s independent think tank on regional issues. This article is an amended version of a speech to a forum held by the RAI with regional city and national leaders at Parliament House in Canberra on 12 October 2016.

For more information on the Regional Australia Institute’s Great Small Cities research, visit www.regionalaustralia.org.au/home/our-current-work/great-small-cities/