Flat White

South Australia: political geography and globalisation

11 January 2017

3:05 PM

11 January 2017

3:05 PM

snip20170110_6In 1996 I published Globalising Australian Capitalism. The book generally gave a favourable account of the then bipartisan policy response in Australia to the process of the liberalisation of the global economy, then just becoming known as ‘globalisation’. In it, I anticipated an increase in the growth rate of the Australian economy and a generalised prosperity to replace the problems of the early 1980s’ ‘stagflation’ it was designed to resolve. 

Although this proved to be a fairly accurate prediction, and twenty-six years of uninterrupted growth followed, two decades later less positive aspects of globalisation are evident.  

In the developed countries, opening the domestic market – by technology and policy – more fully to global competition has produced decline and stagnation in some regions, notably those previously dependent on manufacturing industry. Further, the freer flow of foreign labour into the advanced economies has not been entirely welcome by existing populations. 

In the United States, these declining areas became known as the ‘rust belts’ and provided the electoral backbone for Donald Trump’s successful run at the presidency in 2016. In the UK these regions, mostly in the midlands and north of England and Wales, voted in 2016 for Brexit from the European Union. More generally in the EU, the old industrial working class is showing levels of great dissatisfaction for similar reasons in Italy, Greece, Spain, Holland, France and even, by 2016, some parts of Germany. 

It is extremely tempting to place South Australia within this ‘rust belt’ category; but not entirely accurate. In the early twentieth century, SA likely had the lowest income level of the mainland states; it revived a bit during protected industrialisation, but by the 1980s it had almost certainly returned to the earlier position. It is now, again, the poorest in terms of per capita income of the mainland Australian states with the lowest growth rate.  

But it has also shared with Australia twenty-four years of steady economic growth, starting a year or two later and growing at perhaps half the rate. If it were in the middle of the EU, it would be a near miracle. 

The SA economy is itself geographically diverse and extensive, ensuring that the impact of globalisation has also been diverse and varied. 

In the south-east, the agricultural region centred on Mount Gambier, SA’s second city, has generally remained prosperous. A geographic extension of western Victoria, the combination of alluvial and volcanic soils with a heavier rainfall driven by prevailing south-westerlies off the southern ocean has combined with human endeavour to produce high productivity mixed farming and fishing. It is even now laying the infrastructure, including irrigation, for further increased wine production. 

To its north, the Riverland, a collection of towns with Renmark the core, has developed on the irrigating waters of the Murray River. It has done reasonably well recently by transforming its stone and citrus fruit industries into a major wine-producing region of Australia. Although the region is often the subject of inter-state disputation about the allocation of water rights on which it is dependent, periodic flooding naturally resolves these issues. 

The far north of the state now includes aboriginal lands, but also contains much mineral production. The biggest mine is at Roxby Downs, where Billiton-BHP produces copper and uranium at Olympic Dam. Although the site of perhaps one-third of known world uranium deposits, this mine proved difficult to establish in the early 1980s in the face of Labor and Left opposition. It could form the basis of an extensive, even full cycle nuclear industry in SA, but recently its further expansion has been stalled by both politics and economics. 

The head of the Spencer Gulf contains the ‘Iron Triangle’ of three industrial, Labor-voting towns based on different activities. 

Port Pirie is both the major town for the northern Mount Lofty ranges agricultural settlements and the site of a major lead smelter. The smelter had difficulty competing in an open economy and only survived globalisation with a state government $200 million subsidy to upgrade as part of Labor’s deal with the local Independent MP. He was made a minister after the 2014 election. 

Whyalla was developed in the 1950s and was based on the extensive iron and coal deposits located nearby. In the early 1970s, it was projected to be SA’s second city at 40,000 people with steel making and shipbuilding as its core. It fell extremely foul of globalisation: the shipyards closed in 1978 and steel production threatened to follow in 2016 as increased world supply drove down prices. It had already become a shrinking, 20,000, part welfare-dependent town rather than a growing industrial, proletarian city. 

Port Augusta is a railway town and transport hub. This was augmented by the construction of SA’s largest electricity generating plant. The feedstock was coal from a large mine to its north at Leigh Creek. A dedicated railway line was built to transport the coal, and, indeed, the town of Leigh Creek was moved as the open cut coal mine face itself shifted.   

In 2015 the State government announced that the coal mine, Leigh Creek and the Port Augusta power station would be closed though they were of course privately owned. Energy production would be shifted towards renewables. In 2016 the power station was closed and its chimneystack demolished spectacularly before TV cameras creating a vast dust cloud for the next six months. The consequences are not yet fully counted. 

The York, Fleurieu and Eyre peninsulas are otherwise the location of prosperous farming activities with, for SA, fairly reliable rainfall. There are a number of small, fairly stable regional towns, including ‘little Cornwall’ around Moonta, which was, a century ago, the site of a substantial copper boom itself as electrification took hold in the developed world. Goolwa and Victor Harbour developed as outlets for the River Murray trade, but are now largely extensions of metropolitan Adelaide. 

Port Lincoln may be the most successful adapter in SA to globalisation. A rather quiet fishing town until the 1980s, it then discovered the Japanese appetite for fish product. It quickly started to supply this market by traditional methods of deep-water tuna fishing, plus snap freezing technology. By the 1990s it was clear the tuna stocks of the southern ocean, and the Bight in particular, could be depleted by this strategy. 

In conjunction with government, a system of licenses was devised to contain and distribute catches. The industry then moved towards aqua farming. After some false starts, the present system was developed. This involves catching live young tuna in the Southern Ocean, placing them in pens, towing these slowly to the vast Boston Bay harbour, feeding them daily, and then harvesting them by hand to avoid bruising. 

The result is an extremely high value added product, created to supply the newly enlarged and relocated Tokyo fish market – the world’s largest – at considerable profit. Port Lincoln is by common consent now one of the wealthiest small towns in the country. 

But the bulk of SA’s population is in Adelaide, 1.3 of 1.7 million. It is twenty kilometres wide at its northern end and stretches ninety kilometres to the south where it narrows to a coastal strip where the Adelaide Hills meet the sea.  

This proportionately unusually large metropolitan area undertakes the economic and political activities typical of a regional site of government in a developed economy. There is little decentralisation of government services. What made Adelaide distinctive was its additional high level of secondary industry/manufacturing, higher proportionately than any other Australian capital city.  

This industry was the result of the successful Playford policy in the 1940s to 1960s to take advantage of the then Commonwealth policy of protected industrialisation. Much of that industry was based on core, private investments by multinational corporations, and state subvention, through cheap skilled labour, cheap housing, and cheap power, through state-owned ETSA. It was assisted by lower taxation, enabled by lesser service provision, compared to other Australian states. These advantages gave Adelaide the chance to supply the domestic market successfully, despite its relative remoteness from the east coast population/market centres. 

The SA economy, particularly that in Adelaide, was not created by the market, but by the state, by politics, giving it some ‘unnatural’ advantages. 

These advantages were eroded by two long-term processes.  

First, the period of Labor political domination from 1965 onwards, brought with it, understandably, the same provision of welfare type services that existed in other states, thus eroding some of SA’s comparative advantage in costs. As the SA welfare state caught up to others, this had to be paid for, and its advantages in lower taxes were also curtailed as it went from the lowest to often the highest taxing state in the country.  

The provision of services to intending investors was also reduced as investment incentives were progressively replaced by inhibitory regulatory regimes designed to protect the interests of SA residents, workers and consumers – Labor voters.  Environmental protection also got a good working over, particularly after the ALP pursued green second preference votes from the 1980s. And some state instrumentalities, like ETSA, were sold off by the Liberals – to help pay the debt incurred by the State Bank disaster. 

Secondly, economic liberalisation eroded the competitive edge of SA manufacturers.  

Some of this opening up was policy driven as successive Commonwealth governments after 1983 determined to access the benefits of the global economy. The first and strongest wave of multi-factor productivity gains in the 1980s and 90s derived largely from the movement of labour and capital out of high cost, low value-added, low wage manufacturing, into services, mining and other higher productivity sectors. This was successfully driven by tariff reduction but proved painful for those driven out of business or employment. 

But some of this change was driven entirely by the market and was, therefore, unavoidable. For example, the cost of producing a car in Japan and transporting it to, say, Sydney became progressively lower, and by an increasing margin, than producing a similar car in Adelaide and delivering it to Sydney.  

The marginal unit cost of producing the last 10,000 units of a half million units run in Japan, was hugely less than producing the first ten thousand of a ten thousand run in Elizabeth. And quality control was better and options more numerous. The development of specialised, car carrier ships and delivery aprons eroded any remaining transport cost advantages. By 2016 it was cheaper even to deliver from Japan to Adelaide, than from Adelaide to Adelaide. 

A similar process occurred in: shipbuilding, iron production, tyre manufacture, oil refining, sugar refining, chemical production, metal jobbing, textiles, clothing, shoes, food processing, refrigerators, washing machines, air-conditioning, leisure boats, printing, furniture fabrication, caravans, print and electronic media, bicycle production – and finance and capital markets – and so on. 

The extent of specialisation is limited only by the size of the market. 

In the naughties, health and welfare overtook manufacturing to become SA’s biggest employment sector. In the twenty-teens, retail trading also overtook manufacturing employment. 

As Adelaide’s manufacturing sector suffered the indignities of failure in the domestic market that it once ruled, the process of decline set in more sharply. The head offices of production companies moved out of town; with them followed the firms that provided the advertising, financing, planning, design and building services; banks departed; the stock exchange worked/moved to Sydney; IT companies developed in Sydney and provided services; and the employment base in the private economy of metropolitan Adelaide stopped growing, and then declined. 

The global financial crisis served to accelerate these processes. South Australia, and Adelaide, in particular, faces the prospect of high and rising unemployment for the foreseeable future. 

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

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