Some regions are booming – others need ‘managed decline’

Government assistance to Australia’s regions has often been poorly directed, says the Productivity Commission in a major new report. It wants a more efficient system, which would admit that some regions are in decline and will remain so.

The report, ‘Transitioning Regional Economies’ is the latest in a series of reports by the Productivity Commission that cover a wide range of topics. It seems to be casting its net very wide.

This latest report focuses on how Australia’s 80 plus regions, looking at them individually, and at their prospects for the future.

“A large amount of discretionary spending is directed towards regional areas, by all levels of government,” says Presiding Commissioner Paul Lindwall in his Foreword to the report.

“Much of this expenditure generally does little to facilitate adjustment and long term development. There remains ample opportunity for governments to coordinate better and evaluate this expenditure to improve its effectiveness in supporting development, improving living standards, and generating better value for money.”

And, of course, this report suggests just how this might be done.

There are a couple of ways of defining Australia regions: the Level 4 Statistical Areas used by the Australian Bureau of Statistics, and the FERs (Functional Economic Regions) used by many economists and policy makers. The Productivity Commission uses FERs, which aggregate Australia’s major metropolitan areas into single regions.

These regions are divided into four types: Least Adaptive (mostly Outback areas, and most of Tasmania); Below average (mostly rural areas); Above average (South-Eastern Australia and South Western Australian rural areas); and Most Adaptive (metropolitan areas, South East Queensland, and most of South Eastern NSW except the South Coast.

“Although the regions with the lowest adaptive capacity cover large areas of Australia, they represent a small proportion of the total population. About 659 000 Australians live in the regions with the lowest adaptive capacity, representing 3 percent of the total population.

“In contrast, nearly 16 million people live in regions with the highest adaptive capacity, representing 66 per cent of the total population. Overall, all major greater capital city FERs have relatively high adaptive capacity.

“However, this does not mean that these cities do not have clusters of disadvantaged people living within them that struggle to adapt to changing circumstances. These areas within cities often have similar challenges to those faced in more remote areas of Australia.

“Notwithstanding this, greater capital cities have a higher adaptive capacity to transition and develop relative to other regions, with greater employment opportunities found in proximity to large urban centres.”

The report discusses at length the drift from small towns to cities and major regional centres.

“These trends are driven by productivity, technological change, demography, personal choices and increasingly connected regions through trade in services. The ease of transport and the capacity to undertake transactions using the Internet, mobile phones and satellite-based communications systems has facilitated this trend. There is also greater amenity associated with larger regional centres as well as access to a wider range of services (including schools, aged care services, hospitals and universities).”

The report says that governments have only a finite capacity to facilitate local growth, and “must balance this with promoting conditions for transition and development among all regions.

“It is expensive and generally futile for governments to try to artificially create and maintain an advantage for a regional community where such an advantage does not inherently exist. Time and again, grand scale interventions, or even less grand but persistent favouring of perennial candidates for support, have not delivered measurable benefits.

“In addition, government support always comes at a cost to people in Australia, as taxpayers must find the money.”

The answer, says the Productivity Commission, is not to throw money at declining regions, but a process of what it calls “managed decline.”

“Specific adjustment assistance (beyond generally available measures) should be reserved for extreme events that are likely to result in high levels of permanent disadvantage in a region. It should be targeted to the people who are least likely to make a successful transition and be focused on improving their employment prospects.

“Assistance designed to sustain regions or industries (as distinct from individuals) should be avoided. Assistance should be designed to facilitate movement towards explicit and transparent adjustment goals, which might be a path of managed decline.”

The report is available here.

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