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In a quarter of a century, nothing has changed

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Nearly a quarter of a century ago, international economics consultancy firm, Arthur D. Little, completed a review of the South Australian economy.

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Its review and report coincided with the collapse of the State Bank of South Australia. Premier John Bannon resigned. Lynn Arnold became Premier in his place, to be massively defeated by the Liberals, led by Dean Brown, in 1993.

What Arthur D. Little said about the South Australian economy has largely been lost in the political drama that surrounded its release. It is worth revisiting.

The executive summary of Arthur D. Little’s report, New Directions for South Australia’s Economy, starts by saying that South Australia’s economy is poorly structured and vulnerable:

“South Australia for many years has enjoyed a high standard of living, an enviable lifestyle and a relaxed pace of life. Today all of those are under threat. Unemployment is running at levels which society cannot sustain without encountering severe social difficulties. The unemployment situation could get worse. It is time to ask whether this is simply the product of the current recession or whether there is a more fundamental cause for South Australia’s difficulties.

“The answer to this question is not difficult to find. The problem is not the current recession: it is much deeper and more fundamental. The receding economic tide of the recession is simply revealing the structural weaknesses just underneath the surface of the economy. This report is about restructuring the South Australian economy in order to restore economic prosperity and with it to enable South Australia to maintain its high standard of living and its enviable lifestyle.”

There you have it. Those words could have been written about South Australia today. For at least a quarter of a century people have known about the vulnerability of the South Australian economy, but that vulnerability has not been effectively addressed.

South Australia’s politicians (particularly its Labor politicians who have been in power for most of that time) should be held to account. In a quarter of a century, they have not rectified our fundamental structural economic weaknesses. This is an extraordinary betrayal of trust by successive South Australian Parliaments. There is no evidence that these structural economic weaknesses are presently being effectively addressed, either, notwithstanding that Premier Weatherill has said that the world does not owe us a living.

It is not because we do not know what the economic problem is. No economist with half a wit would disagree with the basic thesis of the Arthur D. Little Report. But, for some reason, we are not able to find effective solutions to our economic malaise. That reason must be political: our State politicians do not believe that voters will support real solutions to our economic difficulties and so they trot out plausible, but ineffective, alternatives.

South Australia’s media, public service and academic economists must also share in the blame for this parlous situation – including myself. I was not forthright enough (even though I was fairly forthright!). This is a company town, and the company is the South Australian Government.  There is a climate of fear in the media, in business and in the public service about speaking out against the Government.

I may have more to say in a later article about my experience of Government when I was CEO of the South Australian Development Council in the mid-1990s, advising Liberal Premier Dean Brown and his Cabinet.

The Arthur D. Little Report said that South Australia’s industry was structured for yesterday’s conditions whereas today’s conditions required global competitiveness:

“Put simply, South Australia has an outmoded industrial structure that is ill-suited to competition in global markets…

“…the Australian market is opening up to international competition and the performance standards of the past are giving way to a requirement for world class performance. The bases of economic success have been fundamentally changed by the process of globalisation… South Australia’s tradeable goods and services will need to be competitive with the best the world can offer…

“South Australia’s situation is difficult since many of the requirements for global competitive advantage are missing from the State’s economic base. There are few demanding customers who, by specifying high requirements, can drive firms to produce better and higher quality products. The economic base is very thin and there is little clustering of related firms or industries… In the small South Australian market there has also been an absence of the keen competition between firms that, in other countries, has driven them to higher levels of performance and competitiveness…

“… The levels of government taxes and charges are perceived to be high. Businesses have to contend with adverse external perceptions of South Australia and the added demands imposed by the dominance of social and environmental objectives in community values and government decision making. The protected environment in which business has developed has created a dependency on government that is not conducive to firms being aggressive or competitive in international markets.

“In the new competitive environment the role of government will need to change. Government will have to reorient its priorities towards economic development, reduce its overall demand on the community’s resources and achieve world best practice in the cost, quality and timeliness of service delivery…

“The only way to be able to afford and achieve other community goals is to get the economy right. A growth economy will create the wealth that supports social, cultural and environmental objectives. It is therefore in the immediate interests of everybody in South Australia to lend support to the restructuring of the economy and the pursuit of economic growth.”

It is time for the people and businesses of South Australia to get their mojo back, stop rent-seeking from the South Australian Government, stand proudly on their own two feet, and become globally competitive, if they can. Some (perhaps many) will fail – but that is OK in a grown-up economy. The birth rate of successful new businesses will increase as the culture of dependency on Government dwindles. At long last we will be restructuring our economy as advocated by Arthur D. Little a quarter of a century ago.

Richard Blandy is an Adjunct Professor of Economics in the Business School at the University of South Australia.

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