Regions hold the key to post-mining boom prosperity
Slowly but surely Australia is beginning to consider what happens after the mining boom. While there is an emerging if reluctant realisation we will have to do something, nobody seems clear on what that might be. New research by the OECD suggests that looking at what can be done to tap the growth potential in our diverse regions may provide many of the answers we need.
Historically, Australian economic policy has been driven by national thinking and reforms. In the eighties and early nineties we deregulated our financial markets and reformed industrial relations, tariffs and tax. A consumer led credit boom and explosive growth in the housing market drove the nation forward in the late nineties and early 2000’s. When the US and Europe fell over in 2008, the mining boom stepped up and provided a foundation for strong national performance while we deleveraged.
But what happens next? We don’t really want to talk about it – but we need to.
Unfortunately national economic reform at the moment looks a bit like dinner at a flash restaurant in the 1980’s (big plate, not much to eat). Carbon trading is in but may soon be out, and regardless we can’t agree whether this is economic reform or environmental regulation or a python. It doesn’t seem clear that the Chinese will be able to save us again either.
However, an opportunity is emerging in regional Australia if we are prepared to take it.
Last week in Canberra, the Regional Australia Institute hosted a forum featuring a delegation from the OECD to discuss the implications of new research for regional development. This research reveals some remarkable facts about the recent history of growth in the developed world that should change the way we view our economic future.
The key insight of the OECD’s extensive analysis relates to regional patterns of growth. Contrary to what you might expect, the most underdeveloped regions in OECD countries (often rural or poor or both) contributed 43% of aggregate economic growth across the OECD between 1995 and 2007.
In other words, nearly half of the developed world’s growth from the late nineties to the GFC came from regions within countries that had performed very poorly relative to the national average.
ASIC requires that investment prospectuses warn you that past performance may not be a good indicator of future returns – the same also appears to be true for regions.
Regions also exhibit greater variation in levels of growth and development than nations and being a big city is no assurance of future success. The OECD’s analysis shows that many rural regions were amongst the best performers, catching up rapidly as they found new pathways for growth and change within the global economy. The benefits of growth are trickling up as much as down.
This capacity for rapid regional growth and change has also been seen in Australia although it is not as well understood.
My old home town of Maitland in NSW is a case in point. When I finished school in the late 1990’s the Maitland economy was struggling. Many of my friends felt that a good outcome from the next few years might be some kind of job or if things really went well an apprenticeship. I could not have predicted how fast things would change for the better.
By 2004 Maitland was the fastest growing local government area in the country. Eight years later, the New England Highway that runs through town bears closer resemblance to Pitt St in Sydney than the main road of a country town. Other regional towns have had similar experiences over the same period.
The OECD research and Australia’s recent experience demonstrate that regions have significant potential for growth and change. This diverse growth in turn supports national prosperity and resilience to external shocks.
However regional policy remains an anathema to most people involved in developing national and state economic policy – it is not even part of the conversation.
Traditionally, regional policy has been seen as a mixture of compensatory social policy and giving in to rent seeking by vested interests. At best the money and time we have spent on regional issues has been about managing side effects, a salve for the wounds of deregulation or simply social programs to deal with the consequences of low levels of growth and prosperity in some parts of the country. The main game was elsewhere.
The evidence we have now suggests that this traditional view is out dated and unhelpful. In confronting an easing of the mining boom we must consider a diversified and resilient national growth strategy that includes policies for harnessing the unique economic potential that exists in different regions.
Delivering on this strategy will require us to do things differently. We will certainly need new national and state strategies to respond to shared regional issues such as the transition of skilled mining workers into other industries. But we will also need to integrate these national responses into regional approaches that leverage each region’s potential and provide regional businesses, NGOs and local government with the ability to make it work.
For Maitland, the immediate future looks bright. But it is also a certainty that any serious decline in the coal price will have a significant economic impact. Maitland and other towns in the Hunter will then be challenged to leverage their other advantages – newly minted local skills that can contribute in other industries, the region’s innovative entrepreneurs and companies who can redeploy local assets and the region’s existing connections to larger markets for goods and services in Australia and overseas.
The OECD research tells us that as much as any grand, national reform, it is our ability to respond to our diverse regional opportunities that will define Australia’s ability to grow and prosper without the mining boom.
Maitland’s challenge is also Australia’s challenge.
By Jack Archer, General Manager Research and Policy