News & Current Affairs
22 January 2015
by Malcolm King
South Australia's 'unmentionable' problems
The global economy is condemning old analogue states such as South Australia to a future of high unemployment, falling revenue and economic stagnation.
Over the past few years, I've researched specific aspects of Adelaide's economic life. My key areas of interest are generational transfers of capital and the psychosocial effects of generational change. I also help people get jobs. There's not much call for the former; too much demand for the latter.
My InDaily story, Adelaide's Decline and Fall appeared to rattle SA Treasurer, Tom Koutsantonis, as it contained damning statistics and polemic which were 'unmentionable'. Unearthing the 'unmentionables' – the hidden assumptions that many of us recognise but are reluctant to discuss – causes considerable distress to some.
I have listed more statistics below. They constitute the 'hidden news' in SA.
- State GDP growth is languishing at 1.3 per cent. The economy may grow at about 1.25-1.50 per cent for the foreseeable future.
- Real unemployment – not the ridiculous ABS methodology – is around 12 per cent and climbing. In parts of Adelaide's northern suburbs, real youth unemployment is over 40 per cent.
- In 2013, 309 out of 5210 Business SA members closed down or became insolvent. In 2014, that figure dropped to 285.
- In 1985, around 100,000 people were working in manufacturing in South Australia. In 2013 that figure had fallen to 74,000 and is dropping. The decline of the manufacturing sector is highly problematic as it 'bleeds' in to the transport and warehousing sectors.
- The State Government has about 75,000 full-time (equivalent) public servants on its payroll. They and their families comprise a powerful voting bloc against change.
- Since 2006, Greater Adelaide median household weekly rents up have exploded from $165 per week to $250 – an increase of 51.5 per cent. Median monthly household mortgage repayments have increased from $1,083 in 2006 to $1,600 – a jump of 44.5 per cent. Yet wages have only risen over that period by 17 per cent.
- Salaries in SA are on average $7000 less per annum than in the eastern states yet we pay some of the highest utility bills in the world.
- Liquidity is so low that Adelaide concert goers 'hedge' on ticket prices, forcing promoters to frequently cancel major international acts.
From 1984-2014 about 80,477 Croweaters fled the state permanently. Most were in there 20s and 30s. On average, between 20-30,000 South Australians actually leave the state every year and mainly lesser skilled immigrants make up the shortfall. This has contributed to a raft of psychosocial problems, such as underwhelming leadership capabilities and the creation of regressive and under-performing organisations.
Our problems are wicked to solve: a lack of economic diversity, failure to transition to the new economy, lack of competitive drive, an ongoing decline of the manufacturing and construction sectors, low exports, shrinking private investment, an ageing population, high taxes on small business, extreme public sector ossification, policy blocking and workplace bullying, youth brain drain, and recruitment nepotism and age prejudice.
The deep structural problems in manufacturing go back to the Hawke/Keating Labor government. The lowering of tariffs and deregulation saw living standards soar. The price for these economic reforms was structural change as the most protected economic sectors were exposed by a lack of competitiveness. The State Government fought to hold on to jobs – and especially at Holden – by introducing 'co-investment' to shore up a product that was losing market share hand over fist. Those days are gone.
This strategy also depended on a large Commonwealth-funded defence sector and a disproportionately large allocation of Commonwealth grants under the formulae used by the Commonwealth Grants Commission. SA gets about $7 billion in Commonwealth Government monies, comprising more than half of its total revenue. Of that, about $4.5 billion comes from the GST. SA gets about $1 billion 'free' from horizontal equalization. It is money not earned because SA, relative to the other states, is battling.
Changes within the population have altered the cultural demographics of Greater Adelaide over the last 30 years, but it's the forces of globalisation and the 'top down weight' of population ageing that will have the biggest long-term impact. A local example is the fact that domestic undergraduate applications are falling in SA – especially for non-science disciplines – forcing academics to lower tertiary entrance standards.
Key traditional charities in Adelaide and rural regions are dying, as ageing volunteers are not replaced by younger folk.
Any investigative research that does not laud the City of Churches' wine and beaches is accused of 'Adelaide bashing'. The people who make these accusations are like upper deck passengers on the Titanic who tell people 'it's just a little hole', as they elbow others aside to secure a place in the lifeboats.
It was former SA Treasurer Kevin Foley (we've had three treasurers in four years), who said that Adelaide's business leaders didn't want to offend their hosts by talking of radical change over a game of mixed doubles. That's not Adelaide's future.
Adelaide has plenty of good ideas but it lacks implementation experience to realise success. Much strategic planning by the state government is a 'wish list' branded as economic priorities but there is no detail on how it will achieve these objectives. There is also evidence of 'blocking' and group think by executives in the public service and post secondary education sector.
The University City Project was an excellent idea that struggled to get off the ground. Adelaide's three major universities and Carnegie Mellon, University College London and Torrens University (Laureate) offer a unique postgraduate experience. Unfortunately many researchers in Adelaide's three main universities work in silos and the same courses are offered in triplicate. Premier Jay Weatherill deserted the initiative.
Pittsburgh, the home of Carnegie Mellon, suffered the collapse of its famous steel and electronics industries in the 1970s and 80s. The headquarters of its large companies moved interstate or offshore. Sound familiar? Deindustrialization in Pittsburgh was a protracted and painful experience. No federal government was going to bail them out. It was change or die.
In the late 1980s, Pittsburgh successfully used the local universities to pour state funds into technology research. With universities and private research centres sharp focus on robotics, health care, nuclear engineering, tourism, biomedical technology, finance and education, the economy grew and attracted large organisations such as Microsoft and Google. I focused on the importance of research to future state growth in an InDaily article optimistically titled SA's economic saviour is in our midst.
Pittsburgh is now the envy of many recession-plagued communities, particularly those where the automobile industry is struggling for its life. While Pittsburgh still has unemployment and population drift issues, if it hadn't changed tack in the 1980s, it would be in dire trouble. Its position was much like we are seeing in Adelaide now with Holden's imminent closure, the struggles of the Australian Submarine Corporation and businesses hitting the wall throughout SA.
The future for Adelaide is clear. Change or decay.