Regional development, structural adjustment and decentralisation: similar horses but different races

Published 20170423

There has been a fair bit of discussion over recent months of moves by the Australian Government to relocate government departments to regional cities and away from the major capitals. Some have interpreted the Government’s actions as an exercise in “pork barrelling” specific electorates, presumably to curry political favour. Others have viewed the measures as a futile attempt to prevent or slow normal regional structural adjustment, in the wake of the mining boom. The government has defended the moves as part of a broader push to decentralise the Australian population, or at least to alleviate some of the population pressure in major cities. The confusing nature of the debate is unfortunate, as it runs the risk of tarnishing the notion of decentralisation, which seems to have some important potential benefits for the national economy.

In its recent report on how Australian regions are faring in the wake of the mining boom, the Productivity Commission has been interpreted as being critical of Australian Government actions that appear to be aimed at ‘propping up’ employment in some regions, and hence impeding structural adjustment. Certainly, one of the key findings of the Productivity Commission research was that government programs aimed at supporting regions have not been successful, and amount to a questionable use of taxpayers money. As the Productivity Commission noted;

Assistance to industries and regions has often been costly, ineffective, counter-productive, poorly targeted and inequitable. To avoid these problems, support to assist people to adapt is best provided within the context of a coordinated, strategic development framework designed to capitalise on a region’s strengths and to facilitate self-sustaining growth.

Some have interpreted this finding as a criticism of recent Australian Government decisions to relocate some government agencies away from the major capital cities, although a close reading of the discussion of the merits of relocation (around P138 of the draft report) indicates this is a misinterpretation of the Commission’s findings. The Productivity Commission noted that the relocation of government agencies is unlikely to result in a large number of jobs being made available in the region (although the ASIC registry centre at Traralgon employs 350 persons), and can be problematical if the requisite skills are not available in the region to which the agency has been relocated. The Commission concluded that such relocations can be successful, but each relocation proposal needs to be considered on its merits.

Relocations such as this to decentralise government activities, however, can not really be considered in the same light as targeted regional funding to preserve jobs in the event of the closure of a major employer, for example, or the provision of subsidies to manufacturers to entice them to locate facilities in a specific location. Decentralisation is internationally recognised as a legitimate policy measure to achieve multiple outcomes including both regional development and to ease major city population pressures, and the relocation of government agencies can be a major catalyst to regional population growth and job creation.

The OECD has produced a large body of work examining regional development and decentralisation policies, and some general observations are available from those. Successful regional development and decentralisation policies depend on bottom-up regional efforts, rather than top-down government efforts, and need to be based on regional endowments. It is also notable that ‘persistence pays” – that is that the measures to enhance regional development need to be maintained as part of a comprehensive program over the long-term, rather than just for a limited period.

An key point that was highlighted by the Productivity Commission report is that jobs growth in the Australian economy is predominantly in the services sector, with the mining, manufacturing and agriculture sectors all reducing employment in recent times. 

This potentially opens up better opportunities for successful decentralisation policies in Australia than was the case in the past, when the availability of jobs was dictated by the presence of minerals, manufacturing and productive agricultural land. As the relocation of the ASIC registry to Traralgon case highlights, services-sector employment is not geographically constrained (and can even be transferred overseas). 

However, the successful decentralisation of services sector jobs relies on high quality telecommunications services being available in the target region, as well as reliable transport and good quality education and health services. Previous OECD research also identified that the presence of tertiary education facilities in a region can be a very important factor contributing to successful regional growth. These bring cultural diversity, and create employment opportunities for professionals and their partners, which is an important consideration in trying to attract people to regional centres and away from the major cities. Good education and health services can also be a key factor in decisions by families to relocate away from major cities.

What is often overlooked in debates about regional development and decentralisation in Australia is that successful policies also have the capacity to ease some of the congestion pressures on major cities. Canberra is a relevant example – its 400,000 residents would have exacerbated current population pressures in Sydney and Melbourne, had the successful decentralisation of these jobs away from the major cities not occurred. 

There appears to be a lot of merit in decentralising Australia’s population away from the major capitals, but this will require persistence, cohesive multi-level government policies that have bi-partisan support, and targeted investment in health, education, telecommunications and transport infrastructure in relevant regions. 

Ad hoc or short term policies will simply result in more of the same – more and more Australian’s crowded into AD Hopes “five teeming sores“.

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