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14 August 2014

Adelaide: The Sad Sad Truth

From the land of third rate politicians, to diabolically dodgy recruitment practices; from a state government that spent $73 million building a one way freeway and then 14 years later, built the return lane at a cost of $400 million; from the understaffed age care facilities to some of the highest energy bills in the world; from kamikaze car drivers in the land time forgot, to sewerage fees set to the market valuation of the owner's property.

I bring you Adelaide.

With an opening like that, I've already lost half the SA readership. But as the state has some of the highest illiteracy and innumeracy rates in the OECD, who's going to notice? Let us take a trip deep inside the psycho-sociology of Adelaide.

'All happy families are alike; each unhappy family is unhappy in its own way,' Tolstoy said. Adelaide is unhappy in an impoverished way. As a child raised in Adelaide, I remember it as a pumping, cosmopolitan city. Now, 45 years later, fearing the 21st century, it has turned Amish and has turned its back on the outside world.

Many think that the recession in SA is short term and once spending picks up, all will be well. Wrong. We are witnessing the dismantling of the old manufacturing and construction based economy - two pillars that have supported the state since World War 2.

This is the power of the Asian markets at work: low cost labour and high volume, low tech manufacturing. There are other factors such as the high Australian dollar and online competition but these are secondary issues. In South Australia the same marketing jobs appear over and over again, as organisations scrabble for crumbs from a bare cupboard.

SA's key performance indicators (ABS and Labour Force) are shocking:

  • In the final quarter of 2013, the local economy had shrunk by 1.0 per cent.
  • SA exports comprise 14 per cent of the state's economy. Australia is 20 per cent.
  • Private investment has fallen from 7.0 per cent in 1990 to 5.0 per cent in 2013.
  • SA's GSP is growing at 1.0 percent yet Australia is growing at 2.8 per cent.
  • GSP has fallen from 8.5 percent in 1985 to 6.3 per cent.
  • SA receives $1.30 back from GST revenues from Canberra for every dollar it spends. This is the horizontal equalization 'begging bowl'.
  • CBD vacant office space is 12.4 per cent and rising.

Unemployment rose over the last 18 months from 5.6 per cent to 7.1 per cent (trend). The real unemployment rate (non-ABS methodology) is closer to 12 per cent. Real youth unemployment in Gawler and Elizabeth is close to 40 per cent.

According to DIAC/ABS, from 1984-2014 about 80,477 Crow Eaters fled the state permanently. Most were in their 20s and 30s. This needs some explanation. On average, between 20-30,000 South Australians actually leave the state every year and in strong economic times, immigrants and make up most (but not all) of the short fall. In poor or indifferent economic times, the departures out weigh the arrivals by up to 4000 people per year. Since 1984, that has totaled 80,477 people. During the last ten years, international migrants have back-filled 70 per cent of the locals who left. Now migrant numbers are falling due to local and international factors (no jobs and the rise of Asia as a migrant destination).

Many of the departees were the brightest and best – the high achievers; the ambitious ones, the mad ones, the dreamers, hungry to do well. We invested our rates and taxes in them – and this is how they repay us! So it goes. Labour goes to where the work is. This demographic flight compounds the macroeconomic forces squeezing the state.

I don't support eugenics. It has some nasty ideological ramifications but in Adelaide, it's hard to ignore. Over the last 30 years or so, almost the complete entrepreneurial and professional leadership class has left. This has created a raft of psycho-social problems.

Compared to the eastern states, the professional operating standards of many organisations are extraordinarily low. Resilience is at low tide and there is a baffling sense of entitlement, when no entitlement has been earned. Rights are confused with privileges and much tactical planning appears aimed at obtaining a sinecure. This has created a 'sheltered workshop' culture. People don't rock the boat even when boat rocking is the thing to do.

SA media would never publish this sample of the companies that have closed in the last four years. In fact only InDaily, an online newspaper, publishes exposition. It's not a 'happy face' story: Mitsubishi, the Port Stanvac oil refinery, ROH, Bridgestone (production), New Castalloy, Accolade Bottling Plant (Reynella), Sanitarium (production), Trident Tooling, Autodom, RPG Group, Bridgestone, Clyde-Apac, Priority Engineering Services, Modular Furniture, Sheridan, ADCIV, PSG Elecraft,Mary Martins, Qantas catering, the Port Lincoln Tuna Cannery, Red Ochre construction, Angas Park, McCain Foods (Penola) and many more, have gone.

Hundreds of jobs have been lost at Forestry SA and Hills. Visocorp and Tenneco are in serious trouble. OneSteel, Detmold and Elders are looking very shaky. There have been significant sackings in print and photographic at The Advertiser. These businesses closed or downsized because they were no longer competitive.

Other businesses such as BAE Systems, Redarc, Sage Automation, Sydac and Codan, are doing well. They have reached out to international markets or are making parts up the value chain.

Every now and then an expatriate with national or international experience in their late 40s or 50s will return, usually to look after ageing parents (see graph below). When they apply for local positions, they are invariably knocked back because they are too experienced. Age prejudice is endemic in Adelaide. When merit dies, the city falls. Recruitment apartheid in 'Adders' sails close to criminality. It's a nail in Adelaide's coffin.

What does SA have a lot of? Old people. About 43 per cent of the state's population are Boomers. Indeed, much of Adelaide's popular culture revolves around the long look back to yesteryear, when facts such as owing $14 billion in projected state debt and having a real unemployment rate of about 12 per cent and rising, was unheard of. 'Pass me a chocolate frog cake', say the oldies, and pine for the 'good old days.'

The ageing of the Boomers is a growth retardant. There is no will to harvest the skills of those transitioning to retirement.

Here's a small fact that tells a larger story. In 2012-2013, 10,100 South Australian dwellings had their power cut off because they could not pay their bills. This is a jump of 50 percent from ten years ago. That's more than 6 per cent of all dwellings in the state. According to the media (always dangerous to source), the number of customers who could not pay their water bills has also increased to about 6000 customers per year. The above is evidence of structural change, not ephemeral change.

These are the preconditions for economic collapse. The socio-economic forces - including intransigence in the face of globalism and parochialism - are well documented, and especially in old manufacturing based cities. I'll leave you 'to Google', Flint, Michigan; Mansfield, Ohio; Johnstown, Pennsylvania and many more in the States, which have similar (but different) problems. Instead of adopting half-baked urban reclamation measures such as Renewal SA, see what the Germans did in Leipzig, Dresden and Potsdam.

Here comes the tipping point. Holden and a significant part of the auto parts supply chain will close in 2017. Experts put the job losses in the automotive sector and allied trades at about 15,000 people. Less than one quarter of Holden workers will find a job again in SA. Those aged 50 and over never will.

Both Holden and the Air Warfare Destroyer project will start to wind down in 2016. At the time of writing, it looks as though the new submarine project may not proceed. This means a massive evacuation of skilled workers out of the state. State Gross Product will drop between $8-$10 billion and $5 billion in wages will evaporate. More than 25,000 jobs will be liquidated with a cruel 'knock on' effect that social workers and the police see daily.

Will Adelaide die? No. Large cities of more than one million people rarely do. These scenarios are complex but liquidation of about $100 billion of GSP over the next 20 years, would not be unreasonable. Unemployment would climb to 18 per cent and property values would first stagnate and then plummet, leaving those with mortgages to fund debt on a depreciating asset.

SA desperately needs a private sector supply side solution. But while the media concentrates on puff pieces, and the public remains in the dark or fixated on attacking the unions or political parties, the situation grows worse. The real penalty will be the continuing loss of human capital.

Sad, But true...