Australian Local Government Association

2002-03 State of the Regions Report

For the past five years, the ALGA has been working in collaboration with National Economics to produce an annual State of the Regions (SOR) Report. This year's SOR Report is launched at the Telstra Press Club on Tuesday 29 October 2002, in an address by Dr. Peter Brain of National Economics. The SOR Report provides an annual stock-take of the economic well being of Australia's regions and their prospects for economic development and employment growth. It provides invaluable information to Local Government to assist in developing strategies that promote the regional and economic development of their communities and provides rigid statistical data on each region.

The theme of the 2002 SOR is Regional Economic Governance and along with the traditional update of the regional performance indicators, the Report focuses on governance and the linked issue of growing inequality between regions. This growing inequality is the result of the process commonly referred to as 'globalisation', but in reality represents the outcomes of the shift in economic structure towards the so-called 'knowledge based' or 'innovation' driven economy.

The issue of governance is linked to disparities between regions because the issue of governance is seen as part of the general regional development policy response. Currently in both Western Europe and the United States there is unprecedented interest in regional development policies and local/regional governance reform. Leading corporate strategists, such as Professor Michael E. Porter, are reinforcing earlier SOR Reports by stressing renewed importance of location as a focus for building internationally competitive strengths.

Findings in the SOR Report is the focus at the Regional Cooperation and Development Forum held in conjunction with the ALGA National General Assembly and attracts much positive media attention for Councils and their communities.

Preface

This report is the fifth State of the Regions (SOR) report. The core objectives of the SOR reports are to:

1. present the latest statistical indicators of how Australian regions are performing
2. analyse the indicator trends in terms of growing equality and inequality between Australian regions
3. make suggestions for the policy implications of current Australian regional performance
4. steadily expand the indicators used to measure regional performance

In relation to objective (iv), the regional scoreboard indexes have been considerably expanded this year. Given the current topical interest in regional housing markets a new set of indicators has been added to measure regional housing market outcomes.

Indicators included in this set include those covering housing affordability and investor housing market balance.

A new indicator set covers environmental issues with a focus on rainfall and water supply issues. Again this is topical in a drought year.

Another indicator set includes measures showing the distribution of income within regions for youth (i.e. those aged 15 to 34) and older workers.

The inclusion of environmental indicators is another major advance in this year's SOR.

Perhaps the biggest indicator breakthrough in this year's SOR deals with the addition of a creativity index and its component indexes covering patent activity, advanced industry activity and the indicators covering cultural, ethnic and lifestyle diversity. There are a number of dimensions to these indexes. Firstly, based on United States and the analysis of this report they are good predictions of the ability of regions to be successful in the modern globalised economy. More importantly, they allow Australian SOR regions to be benchmarked and linked to comparable United States regions.

The immediate response by some is to say: what this SOR report is telling us is that if our region does not have ethnic and cultural diversity and no high technology industry and is 402 on the United States ranking scale, then we might as well give up. The answer to that is a clearly, DON'T.

There are few regions even in the United States that emulate the San Francisco/Silicon Valley region. But United States regions in general appear to have been reasonably successful in keeping up. In this context what is important for an Australian region that ranks lowly on the creative index is to use the information in the SOR to see how their comparable United States regions are performing. From this group select those that have been doing reasonably well socio-economically and explore what is driving this outcome. For many United States and Australian regions the pathway to convergence of living standards is not blind emulation of highly ranked creative regions, but complementation and leveraging off the opportunities created by the highly ranked regions.

In this context tourism is an important instrument for raising creativity rankings of a region. This is because tourism leads to more diverse lifestyle infrastructure compared to what otherwise would have been available. For many regions such indirect benefits from tourism are more important than the direct benefits.

Nevertheless, the requirements of the globalised economy are that all industries, whether high-tech or low-tech, must be best practice knowledge based, have a high capacity for innovation, and be highly entrepreneurial. This is raising the bar for all regions. Given the characteristics of a region, it may well prosper being ranked 402 on the United States scale. However, for it to stay at 402 and continue to prosper it may well have to evolve its socio-economic structure towards attributes important for creativity, albeit in niche areas and on a relatively small scale.

Under objective (i), the structural indicators from the 2001 SOR, namely population, employment, income, etc. are updated in this SOR. Although the latest estimates are to 2002, for many indicators the degree of "hardness" between the indicators varies. Population, employment/unemployment, etc. are up to date. Income flows data are based on the tax data and Census data. The 2002 estimates are prepared using NIEIR's microsimulation models given national and State data benchmarks.

For objective (ii), the SOR presents a new framework for clearly identifying recent trends in movements in equality and inequality between regions. This presentation is core to the SOR and is therefore selected to be the first chapter in this report.

For objective (iii), this report focuses on reform and restructure of local/regional governance in the context of improving national competitiveness. This is given context by the report outlining the intense activity that is going into local/regional governance enhancement in Western Europe and the United States.

The report is divided into five parts. Part A (Chapters 2 to 5) deals with regional inequality issues, Part B (Chapter 6) creative regions and Australia-United States benchmarking, Part C (Chapters 7 to 10) local/regional governance issues and Part D (Chapters 11, 12 and 14 to 19) an overview of recent developments of Australian regions by broad (core, production, lifestyle, rural, etc.) regional groupings. Part E (Chapter 13) advances analysis of natural resource analysis and a case illustration of using improved resource intelligence. The parts do not have to be read in order and, indeed, most of the chapters are self-contained.

The need for local/regional governance enhancement depends, in part, on whether or not regions are converging in living standards. The greater the growth of inequality between regions, the greater the need for enhanced local/regional governance. The answer to this question in this report is that Australian regions in general are continuing to diverge in terms of income and wealth. This can be seen from a summary of the conclusions for Chapter 2. If these trends continue at the current rate it will not be too long for Australian claims to be land of equality to have a hollow ring.

• The distribution of employment by region has shown a small improvement since 1998
• Whilst overall equality of employment improved, the regions covering 20 per cent of Australia's population with the worst employment received only 11.6 per cent of new employment created since 1998
• Equality of regional incomes has drastically worsened since 1998
• The regions covering 20 per cent of the Australian population with the highest levels of incomes now earn 30.1 per cent of all income, and have claimed over 43 per cent of the increases since 1999. This is despite record commodity prices, which have benefited many poorer regions
• Since 1998, the 20 per cent of Australia's population living in the regions with the highest average income, received 4.9 times the income growth of the 20 per cent living in the poorest regions
• The "net flow of funds" which is a measure of the consumption capacity of regions has also shown a considerable deterioration in regional equality.
• However, the most dramatic trend in regional equality has been the change in the value of housing stock
• The regions covering 20 per cent of the Australian population with the highest values of housing now own 34.8 per cent of the entire value of housing in Australia. These regions have claimed over 41 per cent of the increases since 1996

The potential steps outlined in the report for enhancing the role of local/regional governance are:

• Firstly states, and then Commonwealth and states, should commit to the promotion of sustainable regional development, in partnership with regional communities, both rural and urban through the co-operative recognition of regions' goals for sustainable development, the promotion of internationally competitive strengths and the facilitation of balanced state and national development
• Local government should be recognised by both State and Federal Governments as a vital facilitator of such efforts and be parties to evolving partnership agreements with them in a national effort to promote the cohesion of our economy and community

Local governments will need to recognise that this commitment entails major efforts to build their capacity as modern facilitators of sustainable regional economic development, recognising that they need to partners with community and business interests as well as State and Federal Governments. This will include new public - private partnerships in infrastructure and community service provision and the building of learning and knowledge based communities. It requires them to move well beyond their traditional roles of physical and community infrastructure provision and finance.

These approaches should include efforts to understand and support community and business efforts to improve productivity, develop active targets to promote full regional employment and export of regions' services and products, to embrace natural resource sustainability, to promote "triple bottom line" accountability and participation by firms, government agencies and civic groups, as well as councils, and counter social exclusion

Some of this needs to be included the development of a core of regional budgets identified by all levels of government and co-ordinated with a vigorous set of regional indicators and economic, social and environmental ' balance sheets" and public reporting on progress. This can run along side other efforts to foster local level enterprise initiative and lend strategic support to it but needs to develop firm analysis of core regional strengths, capacities, strategies and alliances.

• While commonly recognised sets of regions are emerging , these trends should be greatly accelerated over a period of 5 to 10 years. Further consideration must also be given to foster cohesion of effort where economic regions cross state borders across the Tweed and Murray rivers, between the ACT and Southern NSW, and perhaps between Northern areas of WA and NT. (Maybe we can also apply some of the EU Interegia Program experience of fostering projects for cross border integration)
• There is a steady emergence of efforts to promote regions as locations for direct investment by domestic and foreign sources by local and regional communities, by state and some national agencies. This could be intensified if there were efforts to make clearer the geographic impacts and choices of the decision making of institutional investors and deposit taking bodies

Efforts should be made to explore the relevance of such instruments as the US Community Reinvestment Act. Under this, without heavy coercion the Federal Reserve Bank examines and regularly publishes reports on the investment policies of financial institutions so that local communities can see the pattern of returns or reinvestment through those sources.

Local government should seek to improve regional cooperation by promoting a review of ways it can be rewarded by the criteria used to allocate general revenue assistance grants via state Grants Commissions.

The following identifies a number of broadly sectoral initiatives worthy of consideration.

• The role of local government in natural resource management should be recognised and be strengthened. The use of Heritage Trust Funds should be used as a lever to achieve this objective
• Links between social and community development and economic and NRM forums
• Integrate the Area Consultative Committees into regional forums or development systems anchored on a firm LGA foundation
• Regional socio-economic information system implementation as outlined above, can promote regional benchmarks
• Examination of the enterprise zone system proposals for stressed regions
• Local government be better resourced to discharge their current and future responsibilities by a formula allocation of GST revenues
• Explore the European developments of regional devolution, and of linked up services provision as outlined in Chapter 8
• Experiment with the levels of 'block funds' linking a range of regionally relevant State and Federal Government programs with greater levels of local discretion in application
• Apply the EU experience of Structural Funds and their programs, especially in SMEs, R and D promotion and diffusion, education incentives and regional targeting, learning communities and cross border co-operation, again as explored in Chapter 8
• Explore multi-region relations to national infrastructure programs
• VET and university funding relations need further improvement in the shifting environment of tertiary education and research to strengthen regional alliances and protocols and their relations with compulsory and community education networks and reforms
• Strengthen inter-governmental cooperation to achieve enhanced regional economic outcomes, possibly by examining the experience of the European Union's Council of Regions to elevate the participation of regional communities in national policy and to promote more vigorous sharing of regional experience and multi-region cooperation.

By 'local/regional governance enhancement', which is sometimes referred to as reform in the body of this report, is meant two things:

• firstly, greater responsibilities for local government as now constituted
• second, increased flexibility for allowing individual local government to form regional grouping with other local governments on an issue by issue, or policy by policy, basis

That is, any one local government may be in a number of regional groupings depending on the requirements of the time and the efficiency of policy design and implementation.

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