Economic knives sharpening for Adelaide

Adelaide has the smell of slow cooking frog about it. There are those who deny the frog is in boiling water, there are those who say the frog deserves its fate and those like me, who want to save it.

Like Cassandra the prophetess, standing outside Agamemnon's palace while his wife sharpens the knives inside, I fear for Adelaide's future.

Adelaide's economy is in deep trouble and its politicians are helpless to save it. Indeed, they are part of the problem. They lack the experience to deal with an endemic and wicked structural crisis that threatens to turn a once fine city, in to a shell of its former self.

Back in the 1960s, Adelaide was Australia's third largest city, both in population and economic influence. A Facebook page called 'Adelaide Remember When', is a glorious example of Boomer nostalgia, but it also carries a series of pictures that shows both King William Street and Rundle Street in the CBD packed with people and sales in the 1950s and 60s. The city was booming, in part because population was booming.

The state never really recovered from the fall of the State Bank in the 1990s. Adelaide has slipped to fifth behind Sydney, Melbourne Brisbane and Perth in terms of population and productivity. It has been hit hard by the forces of globalization, the deregulation of the national economy, the GFC, the high price of the Australian dollar, the decline of its manufacturing sector and tourism, outward population migration and investment moving to the eastern seaboard.

Some Adelaide people may say, 'that's fine by me. Small is beautiful. Lets whittle a while'. But if you want to make sure there is a broad tax base and jobs for your kids; if you want to make sure there are retirement homes and nursing care for your folks and if you want property prices to remain steady rather than freefall, then being a small whittler isn't the way to go. The contraction is due to external forces and structural inefficiencies as the icy winds of globalism blow jobs away from SA's 'analogue' economy.

Lets walk on the sunny side of the street. Adelaide has retained many fine buildings, particularly on North Terrace, King William Street and Pirie Street. This is something to crow about. Adelaide Oval will be a world-class sports stadium, linked to the city. Rundle Mall, Victoria Square and the east parklands are being refurbished. The new Adelaide Hospital is taking shape and is one of the most innovative pieces of architecture in the southern hemisphere.

Fiscals

Now back to that slow boiling frog. SA's rate of growth in gross state product is about 2.1 per cent a year - far below Australia's at 3.4 per cent. Entrepreneurialism has taken a back seat and private investors (excluding some large property developers) seem content to let the government take the lion's share of investment. This is extraordinarily dangerous as it means the state budget relies on the horizontal fiscal equalization of GST revenues from Canberra (getting money even though the state did not earn it), defence contracts and mining royalties.

You will see some booming and busting in the employment numbers every quarter but the trend - even with the ABS's dubious methodology of counting the unemployed working one hour a week as being employed - is downward. The SA unemployment rate is 6.0 per centand would be over 7 per cent if many in the 50+ and teen cohorts had not stopped looking for work. Youth unemployment (15-19) in the northern Adelaide region is 43.2 percent and across the state it's 25.4 per cent. Job advertisements are in free fall.

Government debt has climbed past the State Bank disaster level.The budget deficit for 2012-13 is just under $1 billion but the ratio of government debt to government revenues will exceed the government's target of 50 per cent. Further downgrades of the state's credit rating below AA+ are on the cards.

The South Australia's workers' compensation body WorkCover is carrying more than $1.36 billion in unfunded liabilities. Unfunded liability reached $843 million in 2007. In 2008 the unfunded liability blew out to $984 million. It just keeps going up. Why? The operation is inefficient and the levies it charges on employers are some of the highest in Australia. It is understood that the state government is considering winding up WorkCover before the next election.

Competition? No thanks

Earlier this year, cheapie Asian airline AirAsiaX, was hailed as a godsend by the state government as it will fly through Adelaide as part of its Asian leg. Unfortunately AirAsiaX had the audacity to run an advertising campaign, which encouraged Crow eaters to travel abroad rather than holidaying in Crow land. The SA government was not amused. Who would have thunk an airline would run a promotion like that? So I can fly to KL cheaper that flying to Kangaroo Island? That's called competition. The advertisements were quietly removed.

Power off

10,100 South Australian dwellings had their power disconnected because they could not pay their power bills from July 2013-July 2012. This is a jump of 50 percent from ten years ago (accounting for population growth). There are 643,889 occupied dwellings in South Australia, which means that 6.37 per cent of properties had their power turned off. This is an extraordinarily high figure for a state that claims to be progressive. It is indicative of larger and deeper structural problems.

Exodus costing SA millions

SA is losing more than 3000 residents each year. Lured by better job prospects, and a more cosmopolitan lifestyle in cities such as Melbourne and Sydney. Earlier this year, Census data collated by Adelaide University demographer Professor Graeme Hugo, showed that 59,222 people left the state between 2006 and 2011 - 9000 more than who came to SA over the same period. But this exodus rate has been going on since 1979. It's a guestimate but since then, Adelaide has lost 200,000 of its best and brightest to Melbourne, Sydney and offshore. Less than five per cent return.

Charles Landry, cultural planner and the state's second Thinker in Residence, estimated that of Adelaide's one million inhabitants, "perhaps 250,000 are underachieving". In his report Rethinking Adelaide: Capturing Imagination, he said that "Adelaide people with a high level of ambition find it hard to realise their potential. It feels as though the pool of risk takers and thinking people is too small to stimulate people to achieve more." The sociobiological results of this kind of thinking are not appealing.

A declining share of working age population will directly reduce the total size of the labour supply and it will indirectly affect the work force participation rate. That's a double whammy.The migration of young people is a major economic loss costing millions in lost revenue because the state is losing its future taxpayers. If the state loses people in there 20s - and that's often the case in SA - the South Australian taxpayer has funded their schooling. When it comes to those people paying back to the community by way of tax, it goes to Sydney or Melbourne instead.

An ageing population and slowing workforce growth means councils' ability to provide services will be outstripped by demand. An ageing community means fewer ratepayers, less taxpayers, less volunteers, less people to work with. For the first time in living memory, South Australia's population growth slipped below one percent (.9) as of March 2013.

The number of people in Adelaide aged 65 and over is set to double by 2050 to about 370,000 compared to 183,300 in 2011. The number of people aged 15-24 is expected to increase by about 23 per cent - to about 197,100 compared to 160,400 over the same period.

The youth flight and the ageing of the population will create some very serious 'knock-on' effects for the state but I will mention only one, and it is probably a minor effect. Pirating of staff will become intense. Businesses will notice a drop in performance and efficiency as staff leave for retirement or as young people continue to 'brain drain'. Pirating of human capital creates a ricochet effect through the political economy of organisations. Productivity falls away.

A fast cooking frog - newspapers

The August national newspaper circulation figures were very bad. Fairfax is in deep, deep trouble and News Corp is not far behind it.

The Advertiser's (Monday to Friday) circulation slipped 10 per cent to 155,635 of newspapers 'sold'. The reason I parenthesis 'sold' is that during the football season, more than 10,000 newspapers were hurled off a back of a truck at AAMI Stadium. The Sunday Mail has fallen by 9.3 percent to 246,007 copies sold.

The Advertiser has been trending down about 4 per cent year-on-year but a fall of 10 percent is unprecedented. One explanation may be the migration of readers to the digital form. If though, the 10 percent fall is a true figure, and there are no other explanations (such as sun spots, alien invasions, etc) for the decline except that the public has given print the 'heave ho', then The Advertiser may fold within three years. The tipping point is when production costs cannot be balanced against projected revenue. Will the digital lifeboat float? That remains to be seen.

I half expect Murdoch will divest himself of his newspapers over the next few years and focus on satellite media and entertainment. That may leave Adelaide without a daily newspaper.

Unlike Cassandra, I do not believe the future is written in stone. Fighting back against the forces of economic and social decay requires brave action. Not every one will like it but the time for 'pie in the sky' schemes is over. For Adelaide, the future is already here.

Remedies

• Massive advertising and PR push in Europe and UK for businessmen and women with capital and new ideas to emigrate. While the SA strategic plan calls for population increases, the figures are generic. This needs action now.
• Slash land taxes across the board.
• Incentives for CBD employers to start car pools and institute working from home one day a week. Put the onus back on organisations to create car pools.
• Employers to ensure graduates in specific high demand areas are hired through an ‘indenture’ scheme. Merge the professions with the training.
• Stop further expansion North and South of the city and build apartments in the CBD to 14 floors. At the same time, merge North Adelaide with the City of Prospect Council.
• Throw open unleased office space to IT, games graduates and artists, to start businesses.
• Customer service training for all: speed, accuracy and courtesy.
• Re open SA’s trade offices in India and China. They should be staffed by people with business and marketing backgrounds with annual KPIs to meet.
• In fill development housing in City of Marion and City of Charles Sturt.
• Massive replanting of trees in western and northern suburbs.
• Focus government departments on implementation phase not planning. For 20 years state government have both created and been inundated by studies and reports. Now is the time to act.
• Merge Adelaide and Uni SA and entice more small universities to establish shop fronts in SA but must do practical research. Torrens University (Laureate) will begin trading in 2014. How they fare remains to be seen but their model of bringing students from offshore for a semester to study in Adelaide is unique and enterprising.
• Ramp up Education Adelaide by giving it a $3 million per year operating budget. The international education industry poured $863 million into the South Australian economy in 2011/12 (ABS). It accounts for more than 6000 local jobs and is the state’s largest service sector export. The state needs to get behind the international student drive.
• Top ten percent international students get residency status.
• Tax holidays for international IT organisations and banks to set up in Adelaide.