Economic success for the state is much more dependent on stimulating the start of new businesses than on trying to protect failing businesses from ceasing their operations.

The reason for this is that the world is changing all the time. Businesses begin to fail because the world is changing in ways to which they are struggling to adapt. It is these very changing circumstances that give rise to opportunities for start-up companies, however. The future (at least for a while) belongs to them.

Economic survival is a major payoff to firms that innovate, therefore. If we are to be economically successful, our economy and its businesses must innovate and evolve as the world economy evolves.

Prolonging businesses’ existence by subsidies “to protect workers’ jobs” is a political act, not an economic one. South Australian workers as a whole have been poorly served, over the medium to longer term, by people pretending otherwise.

Much of the innovative renewal of our economy will always come from the starting up of new businesses. The rate at which new businesses start should be encouraged by the South Australian Government by removing regulations and taxes from start-ups.

Regulation and taxation might start only for firms that have survived three years: which is about half of start-ups in South Australia.

In the 19th Century, South Australia was vibrant. It was technologically, politically and socially innovative, educated, skilled and smart, compared with the rest of the world. It was pioneering. It was incredibly successful. By contrast, our recent history of relative decline has been characterised by increasing government intervention – and protection of existing activities.

If we are to turn our declining fortunes around, we must become pioneering, entrepreneurial, self-reliant and adventurous again. Adelaide’s capacity to give birth to, and nourish, entrepreneurial start-up businesses is key to South Australia being able to do this. It is not everything, but it is absolutely key to the rejuvenation of South Australia’s economy.

The economic transformation that South Australia is facing is similar to that facing all the developed Western countries. They are transiting from the industrial era to the post-industrial era. The death of major secondary industries is a symptom of this transformation. Our emerging economic base of electronically-networked small to medium businesses is in conflict with our inherited political and institutional superstructure of big firms, big unions and big government.

Notwithstanding our low rate of start-up formation, Adelaide is home to an intriguingly vital, underground network of young entrepreneurs, slowly emerging to the surface and into the broader community.

The post-industrial future into which we are moving is essentially a rejection of bigness, centralisation and bureaucracy. Its motto is “Small is Beautiful”. Its defining technology is electronics and the internet. It is organised in horizontal networks (like Facebook). No-one is “in charge”. Its core activity is what has been termed “the creative industries”, in which Adelaide is strong.

A not-for-profit organisation called StartupAUS was formed two years ago by 50 leaders in the national start-up community to foster a community of technology entrepreneurship in Australia. Fourteen months ago, StartupAUS published an action plan called Crossroads (followed up this year by Crossroads 2015).

CrossRoads cites a Startup Economy study undertaken by PwC, and commissioned by Google Australia, that found high-growth technology companies could contribute 4 per cent of GDP and 540,000 jobs to the Australian economy in 20 years’ time.

Industries that today account for almost a third of Australia’s GDP are in line of fire for severe disruption fuelled by technology. Even historically strong industries less likely to be disrupted by technology are coming under intense pressure from emerging economies with lower cost structures and geographic advantages. This one-two punch has the potential to stall Australian economic growth, render whole industries uncompetitive, and lead to climbing long term unemployment across the nation, especially in the weaker regional economies like South Australia’s.

Historically, our leaders have viewed technology as a means to drive higher levels of productivity, leading to higher GDP, higher standards of living and longer lives for all. But there is a shift taking place. Technology is now pervading every sector of every industry.

Inside Facebook’s headquarters in Menlo Park, California. EPA image

Technology-based jobs have been found in an American study by Enrico Moretti, Professor of Economics at the University of California, Berkeley, to have a job multiplier effect of five – bigger than in any other sector.

Adelaide presently has about 8 per cent of Australia’s 1000 annual start-ups. Start-ups could contribute more than 40,000 jobs to the South Australia economy in 20 years’ time, far more than the 2,000 jobs being lost at Holden. According to Crossroads, Facebook employs about 1,500 people in its Palo Alto HQ, but has created an estimated 53,000 jobs for Facebook app creators and 130,000 jobs in related business services. Apple employs 12,000 people in Cupertino, but has created over 60,000 jobs elsewhere.

Australia has underinvested in high-growth technology companies. It has one of the lowest rates of start-up formation in the world and one of the lowest rates of venture capital formation. According to a recent World Economic Forum report, Australia’s start-up ecosystem is lagging due to a lack of emphasis on entrepreneurship education, limited engagement with universities and poor cultural support for entrepreneurs.

Notwithstanding our low rate of start-up formation, Adelaide is home to an intriguingly vital, underground network of young entrepreneurs, slowly emerging to the surface and into the broader community. These young people are moving from their bedrooms to co-working and other spaces, and are now driving a collaborative entrepreneurial culture in Adelaide – a culture which most Adelaideans will never have heard of. I call this network Adelaide’s “start-up ecosystem”. They are the small boats that may rescue us from a prospective economic Dunkirk.

I will be writing about this ecosystem, on which our economic future will increasingly depend, over the next couple of months, together with other stories about successful South Australian firms in our present economically-turbulent times.

Richard Blandy is an adjunct professor in the Business School at the University of South Australia. Read his economic analysis every Thursday in InDaily’s Business Insight.