Beware the bolting regions - The Good Oil by Rod Brown*

The Good Oil by Rod Brown*

The Grattan Institute has just released a report recommending that governments should tilt funding towards fast growing regions. Titled "Investing in Regions: Making a Difference", it argues that government funding should steer away from slow growing regions without sustainable economic foundations, towards 'bolting' regions where people and jobs want to go.

The report also recommends that governments should cut funds to those regional universities making a modest economic impact, and subsidise students to attend higher education facilities in capital cities. It's all reminiscent of Treasury economists in awe of Adam Smith's doctrine of following the invisible hand of the market. I guess the Grattan Institute has only been around a couple of years, and has to make its mark. But peddling these sorts of recommendations is downright dangerous.

Bolting versus lagging regions

The fault with the Grattan analysis is that governments are duty bound to help lagging regions to adjust to market shocks and minimise social dislocation and distress. Every developed nation offers subsidies to lure labour intensive firms into such regions. Examples here are northern Adelaide, northern Tasmania and more recently the Lower South East region of South Australia.

As regards to redirecting expenditure, how do you define a bolting or lagging region, and over what period? The report lists Cairns as a bolting region - wrong because the tourism market has now collapsed and unemployment is high.

The report also recommends that governments should forget about trying to attract investment into lagging regions on the basis that it's a lost cause. Key Murray Basin cities - Mildura, Shepparton, Tamworth, Orange-Bathurst, Albury-Wodonga - that are now recovering from the drought are in that category!

Infrastructure

The Grattan report argues that infrastructure investment may only have a limited impact on a regional economy - this is at odds with scores of investor surveys. The report nevertheless says that bolting regions should have priority for such expenditure - this would consign lagging regions to a permanent state of disadvantage.

Universities

The report's recommendation for a downscaling of regional universities is short sighted. Regional Australia critically depends on building its skills base and development capacity. Along with Cooperative Research Centres, regional universities could be powerful 'poles of competitiveness' (as in Europe). If only we all realised it.

The better solution

Regional development is a messy, imperfect process. The interplay of economic and social factors is complicated by the intersection of Local, State and Federal politics. The result is a myriad of plans, strategies and programs peddled by scores of agencies.

Regional stakeholders are mesmerised by all this complexity. What they want is recognition and respect, and the knowledge that governments (plural) are systematically building their local economy and institutions. They intuitively know this will help them cope with company closures, droughts, floods, cyclones and the like.

In this context, the regional development approach being pushed by the Federal Government will hopefully deliver this recognition. It puts the onus on regional stakeholders to focus on their competitive strengths, and to collaborate with State and Local Government, local businesses, universities and the like to develop sustainable growth paths. It also challenges regions to be persistent!

This is good. These principles should become a permanent feature of regional development policy because it also puts the onus on the Federal Government to provide decent feedback to Regional Development Australia applicants. And it sends a message to Federal and State agencies to pay attention to projects that:

  • align with a region's competitive strengths
  • are best practice
  • measure up in terms of cost benefit analyses and business plans.

So I suggest that councils assemble their ideas within this simple framework. Meanwhile, you might read the Grattan Institute report because it might be supplying oxygen to Federal and State treasuries looking for cost savings.

Federal Budget wrap

From the May Budget, we have identified a dud, a disappointment and a potential jewel. The disappointment is the Population Strategy. Minister Burke's strategy is nothing of the sort. It's a framework and principles, and ducks any solid discussion re population or immigration targets. It is nevertheless useful in highlighting the need to make rural regions more attractive and thereby ease the pressure on major cities.

The dud is the Rewards for Great Teachers program ($425 million). Bonuses are divisive and an administrative nightmare. This gimmick is now being foisted on a State run education system. Why don't the Feds stick to the knitting?

The potential jewel is the MyRegion website. This is a $4 million investment by Regional Development Australia starting July 2011. It will provide a breakdown of where spending and investment is occurring. Provided this is done properly, it will identify the winners and losers, and provide regional stakeholders with a relative assessment of where they stand.

The downside is that the Murdoch Press and the shock jocks will have a ball.

*Rod Brown is a Canberra-based consultant specialising in industry/regional development, investment attraction, clusters and accessing Federal grants. He also runs the Cockatoo Network. He can be contacted at apdcockatoo@iprimus.com.au or phone
(02) 6231 7261.

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