Flat White

South Australia: two turning points for the economy

4 January 2017

9:50 AM

4 January 2017

9:50 AM

mikenkevinjpgThe Mike Rann Labor government was formed in South Australia in 2002 and thereafter enjoyed a decent decade. It then struck a major hurdle. 

The first major turning point in the development of the modern South Australia economy was the financial loss of about three billion dollars by the State Bank, establish by Labor in the 1980s, at the end of the property and assets boom in 1990-91.  

In order to reduce the resulting state government debt a number of public assets were sold or leased, including electricity, gas and water supplies, by the Liberal governments of 1993-2002. The debt then became manageable, although it, and toleration of it, increased considerably later. 

The second turning point occurred during the global financial crisis of 2008-09. The GFC had an impact of similar proportions to the State Bank collapse. Growth in the SA economy dropped to a very slow trickle, the number of jobs in the private sector stagnated or even — excluding public sector contracting, shrunk — and state government finances deteriorated in the face of attempts to stimulate activity by spending. This process has not ended and almost all the cranes on the Adelaide skyline are now state financed. 

But during the Rann years Australia enjoyed a decade of uninterrupted economic growth, which SA partly shared by producing consumer durables, like cars, for a still protected and booming domestic market. For the SA government, the Howard government’s GST revenue sharing deal was also a delight: steady income growth without more state taxation. Some new growth in primary exports, foreign university students (Asian immigrants), wine production and the Roxby Downs copper/uranium mine were icing on a fine cake. 

Previously a press officer, Rann was a good user of the media — ‘Media Mike’ — and with this renewed economic growth, he won the 2006 election at a canter, with increased votes and seats. At the 2010 election, at which Labor’s popular vote fell below that of the Liberals, Rann then promised to create another 100,000 jobs in SA, a popular but eventually unattainable projection. Labor has in fact produced perhaps 10,000 more, mostly public sector, position in the subsequent six years.  

But by 2010 Rann’s own personal popularity, the highest in the country at one stage, had worn thin amid some personal scandals, yet not totally off. In any case, the financial crisis of 2008-9 hit the SA economy very hard – although it did not drive it into recession – and it has never recovered. 

In 2010 the Labor faction bosses determined that Rann needed to be replaced if the party was to have any chance to continue in power beyond the next election, due in 2014. The search for a new leader commenced. In the end, the faction heavies settled on the Left wing then minister for education, himself the son of a Labor politician, Jay Weatherill.  

During the Rann government, 2002-11, economic activity in SA steadily grew but at a slower rate than the national economy. The national economy, the major market for SA manufacturing industry boomed during this time. There was a global boom and Australia had what may have been the biggest mining boom in the country’s history. Australia’s export markets, notably China, expanded at extraordinary rates. 

Australian productivity also continued to grow at above its long-term average rates, following twenty years of reforming governments, Labor and Liberal. As a twelfth of the national economy with extensive linkages, SA grew with it. 

The naughties was a good decade for SA. 

This facilitated the repair of SA public finances as both state revenue and transfers from the commonwealth grew steadily. The revenue sharing agreement about GST income benefitted a low growth state like SA, although, of course, Labor had opposed the GST in the first place. The state could later even take on board a little more debt without incurring wrath as a continuing revenue flow was widely anticipated. 

The growth seemed sufficiently assured for a modest Green Left energy policy to also be introduced. The naughties were a boom time for global warming climate theory. The theory had swept the intelligentsia in the 1990s and seemed to warrant some development of renewable energy sources in place of ‘dirty coal’. The price for this transition was to be an enormous hike in energy prices – but this was a long way down the track for ordinary voters, let alone progressive politicians. 

The Rann government, with Jay Weatherill initially minister for environment, began to subsidise solar panels and wind turbines very heavily both from taxation and from high posted electricity pricing and cross subsidies. The state-owned electricity company, set up by Playford, had, though, been privatised by the Olsen Liberals. In 2009 Rann announced a target of 33 per cent renewable contribution to energy production for SA. Within the then context this seemed a little ambitious, but still within reason, particularly within Green Left type reason. It could always be wound back anyway – or so it was believed. 

The Rudd Government was then committed to heavily reducing greenhouse gasses – its ‘greatest moral challenge’ – and the then leader of the opposition, Malcolm Turnbull, generally supported its efforts. The world was gathering at various conferences to agree to reduce greenhouse gas, Al Gore’s blockbuster movie An Inconvenient Truth was enjoying wide acclaimed, Tim Flannery had been honoured as Australian of the Year, and the leftist President of the USA was trying to take even that recalcitrant capitalist economy down the non-carbon track. 

The deposing of Turnbull for supporting this direction, the collapse of the Copenhagen Conference, and the intellectual assault on global warming theory itself, were developments only just looming. Rann seemed to be acting fairly appropriately: install some imported windmills and solar panels to supplement the energy supply and do our bit to save the planet. 

There were also several bright spots in the SA economy including: the BHP Roxby Downs copper/uranium mine, where further expansion was anticipated; the burgeoning wine industry, with seemingly unlimited domestic and foreign markets for drunkenness; and the tertiary education sector where a rapid growth of fee paying overseas students (aka Asian migrants) was continuing.  There might even be something in the growth of a subsidised Green technology industry itself with SA as its hub. 

The long drought had also exposed some weakness, especially in the agricultural sector, and in the provision of household water supply. As in other states, an expensive desalination plant was built against contingency, but never turned on since the drought ended with the decade. 

The GFC then slowed SA growth to a snail’s pace within a year or so. The linkages that caused this were various.  

Commonwealth fiscal stimulates between 2008-10 – cheques, pink bats, school halls – to what is now seen as an excessive extent, kept SA growing for a while but as its one-off impact receded, so did the state’s growth in 2011, and thereafter.  

The impact of trade deregulation was already being felt in SA manufacturing as globalisation and import competition intensified. The Whyalla shipyards closed in 1978. The Port Stanvac oil refinery ceased operation in 2003, permanently 2009. The (previously Chrysler) Mitsubishi car plant closed in 2008. The Bridgestone tyre factory closed in 2010. The ASC ship construction yard complex was experiencing declining activity, as its existing naval contracts expired. 

By 2009 the production of cars at the Holden plant in Elizabeth had been substantially reduced but maintained. This was a key facility in the northern region of Adelaide and had extensive linkages to component suppliers throughout the metropolitan region. By that time it was being effectively kept solvent by large and increasing commonwealth subsidies, under Rudd/Gillard Labor, urged by Old Left industry minister, Kim Carr, running into billions of dollars, with some smaller SA government grants. 

Responsibility for the imminent closure of GMH-Holden has been placed at various feet. The market was clearly the main culprit. Since the 1991 Hawke government policy announcement, tariffs on imported vehicles – and other products – were being steadily reduced on a schedule. The four domestic producers found it more difficult to compete against cheapening imports in a small, segmented market in which low and increasingly low volume production drove up unit costs, with no substantial export offsets. 

After the weakest of the four, Mitsubishi, closed domestic production in 2008, the remaining three producers, Toyota and Ford mostly in Melbourne, and GMH-Holden, shared a supplier train of component makers on which they depended. If one manufacturer ceased production, and took some dependent component makers with it, likely they all would close. Ford was weakest in market share and in 2013 announced it would stop producing in Australia in 2016. Deprived of their supplier networks, both Holden and Toyota followed suit, saying in 2013 and 2014 they would close in 2017. 

The GMH-Holden factory had been one of the major reasons for the development of the satellite city of Elizabeth in the 1950s. It had progressively run down its workforce, and closed other plants, in response to automation and then declining production numbers. But the impact of its closure on employment in northern Adelaide would still clearly be considerable and continue the transition of the region from that of productive manufacturing proletarians towards unproductive welfare dependency, or public sector employment/subvention. 

These closure announcements impacted on the supply chain. One supplier was the steel manufacturer, now Arrium, with its major plant in Whyalla, then employing 1,000 directly and something like the whole town of 20,000 indirectly. In addition, it had to face the growing competition of much larger and cheaper producers in Asia, including China. This had already closed the shipyards and steelworks in Newcastle, New South Wales, by 1999, with a large impact on regional economic activity. But Newcastle, being near Sydney, did have other options. By 2016 there was a glut of steel on the global market. 

Nonetheless, Labor won the 2010 SA election with a reduced but handy majority. The negative impact of the GFC on the SA economy was not yet fully appreciated and Labor continued with its seat-targeted campaigning techniques: patronage, intensive polling, direct mail contact, skilled media spin, and its, by now, experienced government. The premier even survived a bout of personal scandal relatively unscathed.   

But the factional bosses, particularly of the Right, were not happy with Rann and believed he could not survive another election. Rann had never been greatly popular within the ALP machine, was not in a faction to protect him, did not direct patronage under appropriate supervision, and had run out his string with the recent scandals.  

The Left Leadership, including Weatherill, had no reason to protect him and good reason to covet his job. Weatherill had originally deposed a sitting member for pre-selection in a safe seat, thereby demonstrating both his resolve and light regard for seniority. 

The Right faction looked around for a successor. Jack Snelling was the leading contender in its own ranks. He was made Treasurer and a series of opinion polls taken to determine his suitability for leadership. These showed that his popularity was clearly behind that of the leading Left candidate, now education minister, Jay Weatherill. The same was true for a second member of the Right, John Rau, later deputy leader. 

As a further demonstration of his resolve, Weatherill stood after the 2010 election for the position of deputy. While he lost on straight factional lines to the imminently retiring Right-winger, Kevin Foley, it placed him in the frame for the succession. It remained to remove Rann and replace him with the first SA Left leader. This occurred in 2011. SA then turned more seriously towards Green Left policies. 

Bob Catley, who was a professor and federal Labor MP, now sails quite a lot.

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