Tilting at Windmills:
Regional Development Policy
by Tony Sorenson
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The Federal Government seems to be treating rural and regional Australia as a homogeneous entity in both problem and policy terms. Yet broadbrush measures like the recent pledge of $1.8 billion to the regions could do more harm than good.

After several years of relegating regional development policy to the political backburner, the Howard Government has recently shown a renewed interest in regional and rural issues. First there was the October 1999 Regional Australia Summit.
Now the government has earmarked $1.8 billion from the May 2000 budget for the improvement of regional services. 1

The governmentÕs turnaround appears to have been triggered by a series of electoral shocks. First, the Coalition lost power in Queensland in the June 1998 elections after 11 members of Pauline HansonÕs One Nation Party were elected to Parliament, mainly in rural and provincial city seats. In the subsequent Federal election in October 1998, One Nation polled strongly in many rural and fringe metropolitan seats. Although the party failed to win a House of Representatives seat, their presence may have helped the Labor Party (Grant & Sorensen, forthcoming). Shortly afterwards in the March 1999 NSW election, two Independent candidates won seats formerly held by National Party members. Jeff KennettÕs dethronement in Victoria, partly at the hands of rural voters, provided the final wake-up call.

Both One Nation and Independent candidates focused their campaigns on the supposed economic and social disadvantages encountered by people living in rural and regional Australia (RaRA).

The case for economic and social disadvantage

During the past five years, regional political leaders and their compliant media allies have painted an image of acute economic and social disadvantage in RaRA. They typically emphasise some combination of:

¥ poor quality and expensive telephones, banking, and health care services;

¥ high petrol and other retail prices;

¥ inadequate expenditure on, and excessively high prices for, such essential infrastructure as roads, telecommunications, and water supply schemes (with the implication that metropolitan residents receive more than their fair share of both capital works and subsidies);

¥ low average incomes and poor educational attainment;

¥ high unemployment, low activity rates, and few high quality jobs;

¥ above average welfare dependence;

¥ substantial outmigration and its attendant social ills;

¥ high levels of personal bankruptcy and youth suicide, and;

¥ often poor quality housing coupled with low and barely rising property prices.

A relativist perspective

This litany of woes may be true of some placesÑespecially small and remote communities with less than 10,000 inhabitantsÑbut it substantially misrepresents most other areas.

According to 1996 census figures, about two-thirds of NSW non-metropolitan residents live either in coastal shires (which are experiencing high rates of population growth); or in the peri-metropolitan fringe around Sydney, the Gold Coast (the Tweed region), and Canberra (which all have rapidly growing populations). The remainder live in and around the larger provincial cities whose populations exceed 10,000. Most of these areas have access to good services and a high quality of life. Some like Griffith in the NSW Riverina have exceptionally low rates of unemployment.

Moreover, the primarily economic and social dimensions listed earlier say nothing about well being and quality of life, i.e. happiness and contentment, personal security, environmental quality, pace of life, or sense of community and belonging (Sorensen 1999). These attributes become steadily more important with rising wealthÑin line with MaslowÕs famous hierarchy of needsÑand probably favour regional residents. But they are difficult to quantify. Unsurprisingly, they are absent from both the quinquennial census and the Integrated Regional Data Base (IRDB) Ñthe official statistics from which spatial disadvantage is usually calculated.

Such statistics also fail to measure crucial cost of living and accumulated wealth differences between locations. These omissions distort the analysis of well being. For example, regional advocates tend to focus on high petrol prices, but conveniently forget about the compensating effects of cheap housing and other services often found in RaRA.

This is not to deny that some smaller and remoter inland settlements face testing times. Developed in the days of the horse and buggy, their reason for existence is vanishing. Reduced on-farm populations, exhaustion or quarantining of local resources and competitive pressures from larger service centres are all contributing to their demise. They have also had to cope with disproportionately high public service reductions, bank closures, population outmigration, unemployment and/or poverty.

That said, many parts of the metropolitan cores are hurting too. The stretch from the Lower Hunter (Newcastle) to the Illawarra (Wollongong) in NSW, for instance, is suffering from the stress of structural adjustment as older industries die out.

Yet the problems faced by small and declining rural settlements are unlike those found in stressed parts of the core. Often there are no replacement industries in sight, partly because the so-called new economy2 is concentrated in the capital cities and small communities tend to have narrow economies and poor skills bases. The processes of circular and cumulative decline thus continually undermine already poor services. Perhaps this explains why the highest One Nation electoral support tended to come from small, declining and less accessible communities (Grant & Sorensen, forthcoming).

For all these reasons, then, regional well being is more variable than the simple dichotomy between large and small communities implies. It also differs according to:

¥ proximity to the coast;

¥ distance from the metropolitan fringe;

¥ the proportion of new economy activities in the local economyÑfor example, the presence of tourist resorts, retirement villages, educational and research establishments;

¥ accessibility to major transport and telecommunications corridors;

¥ the quality of local resources, and;

¥ the proportion of Aboriginal members of the community.

It therefore makes no sense whatsoever to talk about RaRA as a homogeneous entity in either problem or policy terms. We may talk about problems in RaRA but not about the problems ofÊ RaRA.

The forces of change

The forces driving the increasingly dynamic and differentiated patterns of regional well being range from the economic and social to the environmental and institutional. Table 1 (can be viewed on PDF version of this article) lists some of the more important social and economic factors.

Collectively these factors are generating a Schumpeterian Ôgale of creative destructionÕ that is reshaping the viability of existing businesses, creating opportunities for new ones and ensuring the survival of many communities.

This is not a new event, although the rate of change is arguably accelerating along with technology and wealth. The effect of this change is highly variable; it can be both beneficial and destructive. Some people in some places win on balance. Others lose according to their resources, skills, locations, and overall competitive advantage.

This situation is well known, at least in outline if not in detail. Yet there seems to be a widespread belief in RaRAÑeven in the regional capitalsÑthat the winners are disproportionately located in the capital cities.

It is possible that big cities like Sydney and Melbourne have captured a large share of much of AustraliaÕs fast growing, and often highly paid, employment in new economy sectors. If proven, this situation may pose considerable risks even for the regional capitals. Growing economic marginalisation, a relative narrowing of the economic base, and continued outmigration of young people seeking well-paid careers in growth sectors would only accelerate change. Growing appreciation of this risk might explain why people in provincial cities are willing to accept arguments about regional disadvantage even when current statistical evidence points to the contrary.

Several key events also conspired against many areas in RaRA during the 1900s and undoubtedly contributed to a rural revolt, most notably expressed in votes for One Nation. Many parts of the agricultural sector experienced low incomes from drought, poor commodity prices and sharply rising input prices, leading to foreclosures and farm amalgamations. Many towns lost jobs when financially constrained governments and public corporations felt compelled to rationalise service delivery. At the same time, several large corporationsÑincluding the major trading banksÑdecided to close branch outlets in order to improve shareholder returns.

Such events, which raise productivity and increase per capita wealth, are mostly inevitable and desirable. They affect city and country alike, if we substitute manufacturing for agriculture. But their impact appears far more detrimental in RaRA. The reason for this lies in its narrower economic base and proportionately fewer new economy jobs.

Overall, the problem for RaRA is not that rapid changeÑwhich is inevitable and acceleratingÑis occurring. The real problem is that there are difficulties in adapting to change. This dimension does not receive the attention it deserves. It is easier to assert disadvantage and to cling to a familiar way of life at public expense than to seek to create new futures.

What can government do?

The development of effective regional policy involves three difficult questions:

(i)ÊÊÊ At what stage do inequalities in regional well being or problems of adaptation become sufficiently great to warrant public concern?

(ii)Ê Assuming that public concern is warranted or imposed, what are the major contributory factors to those problems and to what extent can they be influenced beneficially by governments?

(iii) Thirdly, even if public policy can ameliorate conditions, do the benefits exceed the costs? And how should we choose between alternative cost effective strategies should they exist?

Prudent action

Rural and regional residents face three potential difficulties: socioeconomic disadvantage, incipient marginalisation, and adjustment to changing circum-stances. These vary greatly in intensity from place to place. We simply do not have sufficient reliable information to conclude that people located at x, y, or z deserve government support beyond standard social security assistance.

The default option in such uncertain circumstances is to pronounce a problem whenever disaffected people acquire sufficient political power to make governments sit up and take notice, as is currently the case. It is an uneasy coalition of interests, as members have different concerns and emphases. Not surprisingly, the aims and objectives of current regional policy are rather amorphous.

Spending wisely

The major forces driving regional changeÑtechnology, globalisation, commodity markets, changing comparative (or competitive) advantage, resource endowment, lifestyle preferences, demography etc.Ñare largely beyond government control or even influence.

Paradoxically, among the most powerful public sector influences on regional well being are the management of (a) inflation, interest and exchange rates; (b) fiscal settings; (c) infrastructure and other non-labour input prices; (d) wages and conditions; and (e) the environment. The paradox is that these settings are mostly universal and national, not sectional and regional. It is therefore difficult to see how governments can influence broad patterns of growth, decline or prosperity at specific locations.

Indeed, practice mirrors theory. It would be difficult to argue that any State or Commonwealth regional development policy during the last 50 years has significantly altered the decline of small service centres or the growth of large ones. Even the transfer of hundreds of millions of dollars to Tasmania recommended by the Commonwealth Grants Commission has been unable to stem high unemployment, low per capita incomes and outmigration. Successive rescue packages for the steel industry and sugar industries have only temporarily delayed their restructuring. In the light of these events, it is difficult to see how the recently unveiled $1.8 billion package that focuses primarily on regional service delivery will substantially change the course of events in RaRA.

That said, governments or their agencies can influence significantly the prosperity of individual communities, especially through the provision of strategic infrastructure. For example, Moree, Narrabri, Emerald and Kununurra have benefited handsomely from subsidised dam construction and associated water supply. Even here though, the economic chickens are coming home to roost as environmental damage mounts and regulatory agencies at last seek higher cost recovery. On the other side of the ledger, governments have often harmed places, albeit temporarily, by quarantining local timber or mineral resources in national parks.

Some regional advocates believe that the specification and enforcement of effective universal service obligation (USO) is a necessary, if not sufficient, ingredient for both regional equity and adaptability.3 For example, the provision of modern telecom-munications infrastructure is an essential ingredient for improving the competitiveness of existing regional business and unlocking new commercial opportunities.

Yet it is difficult to set realistic USO standards for RaRA that are also fair, effective and cheap, given the sparse population covering vast distances. Since existing taxation and remuneration systems are designed to compensate residents in remoter areas at least partially for the inconveniences they experience, the setting of high and expensive USOs possibly amounts to double dipping in the public purse. Governments also rightly shy away from rigid USOs, preferring the flexibility of adapting standards of service according to location and changing circumstance.

Pitfalls and moral hazards

The question that needs to be asked is: do the pay-offs from regional development exceed the outlays? The answer is simple. We do not and almost certainly cannot know because regional economies are shaped by a mass of independent factors. Every region is affected by a different set of conditions and opportunities. There are also three tiers of government involved in regional affairs, and every arm of government (not just formal regional policy) influences regional conditions in some way.

The problem with broadbrush regional strategies is that they benefit individuals, businesses and communities that have no need for the assistance. This contrasts poorly with traditional social security payments. Outlays are almost certainly higher than the advertised budgets because of high transaction costs incurred in programme development and a substantial voluntary input by communities and individuals, including those applying for grant moneys. We also have to factor in the opportunity costs of public outlays and the potential moral hazard of government dependence in bringing about economic and social change.

For instance, the $1.8 billion dollar allocation in the May 2000 Federal Budget for regional services could have been spent in other ways that might have had higher pay-offs: tax cuts for RaRA residents, a higher budget surplus and lower interest rates, improving leadership and entrepreneurship, a few large-scale infrastructure projects, and so on.

On the question of moral hazard, there is substantial evidence that some regional communities can look after themselves in conjunction with private enterprise. For example, the closure of bank branches has unleashed a variety of creative solutions for financial services. These include branches of regional banks, credit unions and various agency arrangements.

The need for a cultural shift

The notion of individual and community adaptation has received increasing public attention over the last 20 years as governments recognise that:

¥Ê it is counterproductive to suspend economic gravity through subsidies and other economic distortions, and;

¥Ê the forces for change can be made to work for us through the adoption of entrepreneurial and innovatory outlooks and the application of leadership and business skills.

This means a sizeable cultural shift in RaRA towards welcoming the future, seeking opportunity (which exists even in remoter areas), and implementing it successfully.

Contrary to the picture portrayed by many regional advocates, there is a mass of successful entrepreneurial activity in regional Australia busily creating new and profitable industries of all kinds, whether in e-commerce or the traditional primary sector.

Recent Commonwealth policy is increasingly emphasising the merits of locally based community and economic development strategies. However, we are in experimental territory. Governments have limited track records in trying to engineer regional culture shifts, and we have little idea of the benefits and costs of alternative strategies or of the overall public expenditure needed to make a national difference.

Perhaps this is a national rather than regional problem. After all, Margaret Thatcher and Ronald Reagan successfully encouraged entrepreneurial initiative in their respective countries by reducing government expenditure rather than inventing programmes to develop entrepreneurship.

Conclusion

To paraphrase Winston Churchill, never has so much been spent on so many with so little idea of outcome. The current rush to bolster RaRA may work to the benefit of some small entrepreneurial communities like Coolah in the NSW Central West and perhaps the larger provincial cities. But it is also likely to collide with the reality that no amount of money and well-meant programmes stand a chance of reversing the fortunes of many a small declining community.

The outcome will be interesting politically because the heart of the rural revolt (and One Nation support) was found in the most maladaptive communities. Perhaps disadvantaged regional residents will be thankful that government is trying to help, however uncertain and imperfect that may be. In this case, the effort and expense can perhaps be put down to the price of having a stable democracy. If the revolt continues, it has the capacity to rewrite AustraliaÕs political landscape in strange ways.

References

Grant, Bligh and Tony Sorensen, ÔMarginality, regionalism and the One Nation vote: exploring socioeconomic correlationsÕ in John Warhurst, HowardÕs Agenda: The 1998 Australian Federal Elections, University of Queensland Press, Brisbane, forthcoming.

Sorensen, Tony. 1999, Socioeconomic Conditions in the Northern Statistical Division of NSW: Evidence from the 1996 Census and Integrated Regional Data Base, SHES, University of New England, unpublished manuscript.

Author
Tony Sorensen is Associate Professor, School of Human and Environmental Studies, University of New England, Armidale. The ideas in this article are developed more fully in his forthcoming paper, Regional Development: Some Issues for Policy Makers, published by the Commonwealth Department of the Parliamentary Library.

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