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Why has South Australia become one of Australia’s worst-performing state economies? Richard Blandy argues the state needs to throw off its conservative, timid approach to create a multi-faceted new economy.

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South Australia is fabulously endowed with natural resources, highly-skilled, industrious, people, and stable, democratic, political institutions.

For at least the last quarter of a century, and arguably since Federation, we have not made as much of this fabulous endowment as we might have done.

Why is this? Why have we become, most obviously over the past five years, Australia’s worst-performing or second-worst-performing state economy?

For most of this time our economic performance has not been disastrous – simply mediocre in comparison with our potential. Our organisational inadequacies were sufficiently masked by Commonwealth economic interventions and intergovernmental arrangements that we slipped only slowly relative to our fellow states and territories.

More recently, our rate of slip has accelerated as some of these interventions and arrangements have stopped propping our economy up as effectively as they once did.

The underlying weaknesses of our own, South Australian, arrangements for producing goods and services – on which the living standard of every South Australian depends – have been thrown into clearer focus. Unless these supply-side weaknesses are rectified, South Australia’s economic slide relative to the rest of Australia will continue.

The supply-side of an economy involves harnessing a mosaic of capabilities to the production of an extraordinary kaleidoscope of goods and services for which people, businesses and governments are willing to pay. A good supply side registers big scores on the Gross State Product (GSP) scoreboard that the Australian Bureau of Statistics (ABS) maintains. A good supply side is a good economic kaleidoscope.

We have failed to evolve economically in patterns which are in tune with maintaining a competitive edge in the changing world economic environment.

The glass pattern of a good kaleidoscope constantly changes with every jiggle. Similarly, the pattern of production in a good economic kaleidoscope is constantly changing with every jiggle that innate human restlessness imparts – with every shift in patterns of desire, ingenuity and capability.

With every change in the pattern, some people improve their position while the position of others worsens. What stops this process being simply a zero-sum game of winners and losers is the effort made by people to improve their lot by exercising creative ingenuity, finding and learning useful skills, working better, saving, and investing in a large range of different activities.

By doing these things, people extend the sum total of productive capability in South Australia (or Australia, or the world, for that matter). The pattern in the economic kaleidoscope becomes more brilliant and appealing than before. It is worth more to we human beings. Our GSP score increases as measured by the ABS.

Our economic kaleidoscope, when it is working well, endlessly creates and destroys opportunities for individuals and groups, adding more opportunities than it destroys in the process. This is economic evolution at work, with the economy constantly evolving in patterns which give it survival and growth capability.

There is a dark side to the vibrancy, colour, spontaneity, surprise, adventure and drama of a good kaleidoscope economy: there is uncertainty, insecurity, inequality and disorder.

If only we could be certain, secure, equal and orderly, what a fine world this would be! If only we could freeze the glass pieces in the kaleidoscope when they assumed a pattern we liked, we could be spared the pressures of an endlessly chaotic existence. Perhaps, if we asked governments to put anti-jiggling controls into place, the pattern in the economy-in-the-glass could even be engineered in an orderly way towards preferred designs!

These tremendous ideas – and their associated program for human betterment – have been tried with great diligence, intelligence and morality in South Australia. Nowhere could this program have had better chances for success than here. And many of the ends have been achieved: we have a very decent, unpressured, orderly, egalitarian, low-risk society.

Unfortunately, we also have a low-opportunity and low-growth economy. As we have shifted away from a mode of coping with uncertainty by spontaneous grass-roots responses, towards a mode of giving the authorities sufficient power to protect us from unplanned change, we have lost economic survival capability.

We have failed to evolve economically in patterns which are in tune with maintaining a competitive edge in the changing world economic environment.

If we are to regenerate our economic performance we will have to put the supply side of our economy back into a winning mode by providing more opportunity and incentive for spontaneous, grass-roots adaptations to economic changes, and by providing less opportunity for the authorities to constrain and direct such higgledy-piggledy efforts.

We will have to give more rein to the exercise of small group productive initiatives and to accept a less ordered, more uncertain, more pressured (but more vibrant, more colourful and more adventurous) existence.

There will be casualties in the short run among those who become exposed to more competition and uncertainty. These are far fewer than the new and different jobs that could have been created if we had not pursued an illusory capability to maintain our existing industries and jobs in the face of fundamental changes in the world economy.

People learn to adapt quickly, furthermore. We can learn to be winners again. Our children and grandchildren, especially, will put colour back into our economic kaleidoscope.

The real tragedy in South Australia is not that businesses prove to be mortal in the face of global economic change, but that too few new firms are being born to replace them and to grow rapidly (as a result of the very same global forces).

That is entirely due to Australian and, especially, South Australian Government policy. Our political class has not been capable of building adequate evolutionary capability into the South Australian economy. We have known of the need to forge such a capability for at least a quarter of a century since the Arthur D. Little Report into the South Australian economy in the dying days of the Bannon Government.

The only way to a positive economic future for South Australia is to build such a capability, now, in far worse circumstances than existed 25 years ago. But build it we must, notwithstanding immediate job losses, if we are to bounce back and prosper in the medium term future and beyond. Otherwise our long-term decline is assured.

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

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