2001-02 State of the Regions Report
Introduction
This is the fourth State of the Regions (SOR) report prepared by National Economics in collaboration with the Australian Local Government Association. The report provides an annual stock-take of the economic well being of Australia's regions and their prospects for economic development and employment growth. SOR looks at strategies to strengthen local and regional economic and employment outcomes, and emphasises the importance of local government and regional agencies. The report looks at 64 regions[1] (there have been boundary revisions since 2000). A distinctive feature is that SOR divides all Australia into regions: both metropolitan and non-metropolitan regions. The regions are divided into six types: core metropolitan (central cities), dispersed metropolitan (suburban metropolitan regions); production (high concentrations of manufacturing); lifestyle (change is driven by lifestyle choices, predominantly post-retirees and tourism); rural (agricultural based) and resource and remote regions (natural resource based).
Regions and the knowledge-based economy
Each year the ALGA-National Economics Regional Cooperation and Development Forum and SOR report look in depth at particular themes and their influence on regional economic performance. The theme for this year's report is jobs and learning regions. The prime concern is how well Australian regions are positioned to capture the economic development and employment benefits from the emergence of the knowledge-based or learning economy. The knowledge-based economy is a reality. The performance and prospects of firms and farms, organisations and individuals depend increasingly on what they know, how they know it, how they use it, how they access it, who they know and how they exchange their knowledge with others.
All developed countries are in transition to the knowledge-based or learning economy. The generation, diffusion and application of knowledge to new and existing products, services and organisations increasingly determine productivity and economic competitiveness. Nationally, we are making progress with the National Innovation Summit, the release of the Federal Government's innovation statement Backing our Ability and broadening tax concessions for R&D. Some of the states are pro-actively developing technological infrastructure and incentives for high technology industries.
One approach to the knowledge-based economy is to equate it with high technology industries, leading scientific and research institutions, universities, and the most highly skilled occupations. How can we increase investment in R&D? How can we improve the performance of our national system of innovation, especially its research and education institutions? Which knowledge-based industries should we specialise in? Can we turn the brain drain into a to and fro conduit, with leading scientists and researchers spending more time in Australia?
Recent studies provide strong evidence to suggest that knowledge and learning are fundamental to economic success in developed economies. Most developed economies have sought to increase their share of knowledge-based industries including information and communication technologies, biomedical technologies, finance and advanced business services and advanced manufacturing. These industries create good jobs, expand production and trade, and drive continuous innovation. Success in some of these high-value high-growth industries is seen by many as a pre-requisite for sustaining economic competitiveness. Although there is a lot of evidence to support this proposition, the knowledge economy is much more than getting a slice of the action in high technology industries.
In this report, we use a broad definition of the knowledge-based economy; we do not simply equate it with high technology industries. The report argues that all industries, organisations, households and individuals must participate in the knowledge-based economy. Households and individuals not participating in the knowledge-based economy risk marginalisation into low paid jobs, economic insecurity and high unemployment. For example:
- To remain competitive, manufacturing firms must continually upgrade skills and capabilities, access new ideas and technologies through industry networks and clusters, tap the knowledge of their workers, suppliers and customers, and search for new market opportunities.
- Farmers benefit from working with CSIRO and rural development corporations to expand crop and pasture varieties, reduce water use, control pests, utilise more environmentally sensitive equipment and machinery, and improve resource and environmental management and practices.
- Educational and training institutions are developing innovative courses and programs to upgrade human capital, increase the flexibility of delivery, and deepen relationships with industry.
- Councils are becoming important agents in the knowledge-based economy through their encouragement and (sometimes) coordination of business and community networks, and through economic development strategies that emphasise knowledge and learning.
- Households are getting involved in continuous learning, through the education and training system, learning at work, and increasingly, through use of electronic technologies. Even lower skilled jobs are becoming more demanding.
The core argument of SOR 2001 is that we must successfully manage the transition to regional knowledge-based economies if all Australians are to share in the benefits of globalisation and the digital revolution. An irony of globalisation is that it enhances the significance of local and regional economies. This is due to, amongst other factors, the growing importance of industry clusters and networks, greater regional specialisation, the utilisation of tacit local knowledge and the need for regions to promote flexibility and adaptation when confronted with uncertainty.
A defining feature of globalisation is the re-emergence of the local and regional economy as an important unit for innovation. The proposition is that regional stakeholders - industry, community and their local government constituents - will be central to the development and implementation of regional specific knowledge-based strategies if Australia is to successfully make the transition to the knowledge-based economy. Some regions are much more innovative than others. This partly explains the widening divergence in performance of regions. Why are regions becoming more important in a global economy where knowledge is the driving force for competitiveness?
First, the new knowledge economy places human capability at the centre of the development process. Entrepreneurial skills, technical skills and the capacity to work in teams and partnerships are required, along with the capacity to absorb new technology and ideas and the capacity to adapt to change and to continually access knowledge. Traditional approaches to regional economic development concentrated on keeping costs low, providing tax and/or rate concessions, and focussing on resource endowments such as energy and water availability. In the knowledge-based economy, constructed advantage - the outcome of human decisions - is the key to competitiveness because innovation is nurtured through continuous learning.
Second, in the globalised economy regions are becoming more specialised. They focus on what they are good at. Successful regions form or strengthen clusters in those industries where they are globally competitive. Globalisation and the knowledge-based economy are resulting in a clustering of higher well-paid industries and jobs in Australia's more globally-oriented regions, particularly in Sydney and Melbourne. This is happening all over the world. The most successful knowledge-based economies are characterised by continuous interaction of dense networks of firms, research and education institutions and regional agencies. Less competitive industries that survived through cost advantages alone become subject to intense competition, resulting in rationalisations and decline.
Third, global corporations are giving greater emphasis to regional embeddedness. They seek to incorporate themselves into regional production systems and to tap local tacit knowledge as a means of sustaining their own competitiveness. They seek to maintain operations in regions where they have access to relevant research and educational institutions, competitive suppliers and service providers, highly skilled and adaptable workers, and an entrepreneurial and innovative culture. Previously, corporate strategies sought to maximise subsidies from host governments, and for knowledge inputs relied on technology transfer from their parent company to their regional plants.
Fourth, many countries including Australia have adopted policies and signed international agreements reducing the role of national policy instruments. The resulting globalisation and trade liberalisation have intensified competition, leaving it to localities and regions to deal with the consequences, including job losses and firm closures. This has pressured local and regional governments and agencies to become more active in economic development. In the Australian context, councils and regional agencies are playing a more prominent role in developing new visions and strategies, supporting business and community networks, and identifying and implementing projects that impact economic outcomes.
Fifth, globalisation and the knowledge-based economy are generating economic and social disparities based on differences in global connectedness, as outlined in previous SOR reports. To address these growing inequalities and disparities, there is a need for pro-active strategies to enable regions to attain their knowledge-based potential.
Methodology
The report analyses how Australian regions are performing in the knowledge-based economy. Drawing on National Economics YourPlace database and other economic data, the report looks at the economic structure and dynamics of 64 regions. As with previous issues of SOR, Sections 2-7 provides a snapshot of recent developments in the different types of region.
All previous SOR reports were prepared during a global economic boom. These reports set out National Economics forecasts of a major global economic downturn in 2001, which is now in progress. Section 8 provides National Economics analysis of the global recession, particularly its causes, duration and the prospects for recovery. From the perspective of regional knowledge-based economies, it needs to be emphasised that, although knowledge-intensity can't shield regions from economic downturn, it can provide them with greater flexibility and adaptability in the face of uncertainty. Regions with low skills, low value added industries and poor networks are much more vulnerable to economic downturn.
Section 9 develops a number of knowledge-based indicators and measures the performance of the regions. It draws on a recently released OECD study Cities and Regions in the New Learning Economy[2]. The OECD highlights the central role of knowledge in economic development and why regions are so important in the knowledge-based economy. The study distinguishes between the importance of individual and organisational learning and develops indicators for both. Individual learning is concerned with the acquisition of knowledge and skills through formal and informal education. One condition for high performing knowledge-based economies is highly qualified people - or a high stock of human capital. Measuring human capital is quite difficult. Education attainment is often used as a proxy for human capital, such as the number of residents with secondary and tertiary qualifications. In this report, we develop a number of indicators of human capital and test the relationship between human capital and economic performance.
Residents don't only improve their knowledge through formal education. Many learn-through-doing on the job, doing short courses or participating in informal learning, whilst increasing numbers use the Internet to learn. The OECD report argues, however, that individual learning is not enough. The economic value of individual learning depends on how it is applied in enterprises and organisations. Organisational learning is concerned with learning that takes place within and between organisations including firms, research and educational institutions and economic development agencies. Organisations learn through ongoing exchanges of knowledge and information with competitors, collaborators, suppliers, and customers and from knowledge-based institutions.
The ongoing interaction between and within organisations nurtures and promotes innovation, increasingly the central attribute of productivity growth and economic competitiveness. Ideas for new designs, products and services, and improvements in organisational performance are generated and implemented most readily in an environment that supports creativity, entrepreneurship and innovation. In this report, we look at four indicators of organisational learning: patents, R&D, concentrations of knowledge-based industries and concentrations of knowledge-based jobs.
Given the limitations of the current data, Section 10 looks at nine Australian regions and analyses how they are going in relation to the transition to the knowledge-based economy. These case studies focus on their current economic development path, regional economic strategies, knowledge-based initiatives and how they are performing in relation to organizational and individual learning. The results are very impressive, confirming the extraordinarily high commitment and innovative capacity of local and regional organizations. The case studies are designed to be reasonably representative of the different types of regions. We adjust our boundaries in a handful of cases to take account of perspectives of regional stakeholders.
The nine regions considered are Gippsland, the Gold Coast, New England North West NSW, Northern Tasmania, Northern Adelaide, South Western Perth, Greater Western Sydney, Wide Bay Burnett and Ballarat.
In Section 11, the report sets out a series of broad strategies to support Australian regions to make a successful transition to the knowledge-based economy. This includes greater emphasis to:
- preparation of regional knowledge-based economic strategies setting out visions, objectives and actions to better position each region, its businesses and households to participate in and enjoy the benefits of the knowledge-based economy
- industry cluster and network policies and programs
- increasing investment in regional scientific and technological infrastructure to support farmers, manufacturers and SMEs in advanced services
- community economic development
- greater coordination between federal, state and local government to support local and regional knowledge-based initiatives
- policies to increase investment in regional infrastructure and industries, particularly venture capital
- a national Learning Communities Program targeted at Councils who are actively engaged in learning based initiatives
- a national regional benchmarking system
Appendix 1 provides a copy of the address of Professor Philip Cooke, the keynote speaker of the 2001 Regional Cooperation and Development Forum, who analyses some of the lessons of the successful regional knowledge-based economies.
Appendix 2 sets out the new SOR boundaries and reasons for the changes.
Appendix 3 sets out economic indicators for the 64 regions. These are developed from the National Economics' YourPlace database, which provides the data at the LGA level.
[1] National Economics, with advice from regions, has undertaken a boundary revision since SOR 2000. The new boundaries and reasons for the changes are set out in Attachment 2.
[2] OECD, Cities and Regions in the New learning Economy, OECD, Paris, 2001.
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