Adelaide - heaps indifferent! (Part 2)

In the last essay on Adelaide, I discussed how the a disengaged public and the reality denying techniques employed by some media has created a fools paradise in South Australia, as an economic blight of colossal proportions slowly builds.

The working class in Elizabeth in Adelaide's north know more about what is happening in the economy than Adelaide's intelligentsia - who are still talking about skills shortages - as they are getting a shovel sized taste of it first hand. Now we turn to some economic problems in 'Crow Land'.

Holden, AWD and the Valley of Death - 2017

Holden and a significant part of the auto parts supply chain will close down in 2017. Experts put the job losses at about 15,000 people – mainly 'factory out-of-workers.' Less than one third of Holden workers will find a job again in SA.

Now consider this. The last vessel of the Air Warfare Destroyer (AWD) program – which is running $300 million over budget - goes in the water in 2019, but the workforce will start to wind back in 2016. Holden will also start to retrench its workers around then too. Unfortunately the future submarine project will not start until the early 2020s, if at all. So the state may lose that workforce and skills base.

This is the 'Valley of Death'. The time between shutting down one large government contract and the possible start of another. There are thousands of people in the state's defence industry. Estimates put total job loses at about 10,000 workers, from welders, pipefitters, etc, right through the supply chain.

The state would lose about $6 billion in GSP. The collapse of both Holden and the Valley of Death scenario would create an emergency and the mobilization of welfare not seen since the Depression. No sector in the state would be immune.

'She'll be right, mate. Have an ice coffee', say the locals. Actually, no. It will not be right by a long shot. Manufacturing is currently about 8 per cent of GSP. It pays $5 billion in wages and feeds in to both construction, wholesale and retail trade. Those sectors would slump hard.

Here's the killer. The economic contraction will drive down the value of dwellings in Adelaide currently valued at $7.5 billion. That's only perceived value. It's not real. The Valley of Death and Holden job losses could wipe up to 10-20 per cent of the value of property in the north and west of the state.

Even the burghers in the eastern suburbs would begin to understand the interconnectivity of revenue flows in a capitalist system. Many of these genteel folk have never been to Elizabeth. Now, their futures are inextricably tied. No jobs. No future and Adelaide's dreaming.

The Ring of Fire

While Crow Land is ground zero for dodgy surveys and polls on the prowl for a headline, in March 2013, Insight Economics did some official modeling for the SA Government. It predicted four scenarios based primarily on Deloitte data and global economic conditions. It stated that it was "reasonable to expect that future economic growth in South Australia will be at least as strong as in the past and there is a good chance it will be better." How it came to that conclusion is baffling.

Events have gone considerably more pear-shaped since 2013, let alone since the late 1980s, so it's worth revisiting. The models reckon SA's Gross State Product (GSP) will grow from 2011-2025 by between 2.7-3.9 per cent. Last year the state's GSP was 1.3 per cent and 1.8 per cent the year before. The historic rate over the last 20 years was 2.7 percent.

The first scenario was the 'Long Boom', which was predicated on high demand for our resources. The modelers completely misread the production cycle in China's ore use but so it goes. 'Smart Recovery' had slower economic growth but then picks up as the world economy improves and the government implements a 'knowledge economy'. Anyone got a second hand one for sale? The 'terms of trade' scenario is nasty as resource prices fall, mainly due to increasing supply from other competing nations.

The modelers said the final scenario, the 'Ring of Fire', was improbable. It was characterized by multiple economic, political and environmental shocks. This scenario is what happens if SA does nothing. There will be increased volatility, low business and consumer confidence and a push for increased protectionism. Very nasty. Johnny Cash fans know just how nasty and existentially confronting that old 'Ring of Fire' is and currently, that's the future of SA.

Growth in employment, GSP and productivity will head south at a rate of knots over the next twenty years. GSP will hover around the 1.5 per cent mark for the next four or five years before dropping as low as 1.2-1.0 percent over the next 20 years. There is no comfort for SA even if the global economy improves as it fundamentally relies on GST revenues and manufacturing. It has a very low export profile. The real grief comes when public services are cut because the state budget can't afford them and we start to see urban decay.

Criteria for urban decay:

• The size of population is going down.

Adelaide's is almost flat. The combined exodus of young people, a low birth rate and the continuing fall in migrant numbers, will tip the state's population in to negative growth within ten years.

• Average income of residents is falling

Not yet. Salaries are growing at about 3-4.0 per cent, although note the Valley of Death scenario. There will still be income, but fewer income earners.

• The poverty line rises to one is six people

One in eight South Australians are currently living below the poverty line.For a single adult that's $258 per week, or $752 for a couple with two children. Greece is one in five. Youth unemployment in SA is the worst I have ever seen it and I remember the Fraser years.

• The population is getting older

Adelaide has the oldest population on the Australian mainland and it's getting older. It means less workers and usually less money spent by the 70+ on retail and services (except health).

• High percentage of vacant offices and buildings

In Adelaide CBD, vacant office space is at 12 percent. In the suburbs, it's about 19 per cent. Currently, in Port Adelaide, it's about 27 per cent.

• Government corruption becomes endemic

It's currently unknown how deep corruption runs in state and local governments. If we had an ICAC style investigation, we'd know more. Adelaide will continue to slide in to penury unless new businesses are attracted to SA and the youth brain drain is counteracted.

Recruitment culture – a non-virtuous cycle

I run a media and professional writing business with a side specialization in workforce demographics and recruitment. Over the last six years or so, hundreds of clients have come to me for job advice. Many have been pushed from pillar to post by Adelaide's recruitment industry. When they get a job, they find it lacks the standards and professionalism they were used to in the eastern states. Many position descriptions in Adelaide are works of fiction.

As the Boomers and Gen X have found to their chagrin, when they return to Adelaide to look after ageing parents and hunt for work, young recruiters knock them back in favour of fresh-faced local candidates. That's not bad if the selection was on merit but they can't knock back everyone can they? They stay just long enough to put Mum or Dad in to a rest home and then vamoose. I wrote an article about it last year for HC magazine.

On a monthly basis, I have senior and mid level executives call me up to work out how to get out of Adelaide. Like the 'short termer' expatriates above, these locals take with them high order skills and experience as well as their super and investments. In systems theory, Adelaide is a closed environment and closed environments die.

Conclusion

We've looked at just a few of the serious problems that threaten to cripple SA over the next 10 years. By far the most serious is a disengaged public. If the public doesn't know the true state of the economy or doesn't care; if they think it all boils down to a contest between the Liberals and the ALP in the media, they are dangerously misinformed. These are structural and enduring economic changes, which will concertina the state's economy as the forces of globalism and China's economy expands.

Actions

• Massive advertising boost for international students
• End public service tenure and new hires
• Massive slash of all government red tape
• Dissolve ACC and redistribute North Adelaide to City of Prospect
• Establish equity capital fund for entrepreneurs
• Tax holidays for new large international corporations
• Raise Social Impact Bonds for NFP builds
• Expand SA Government international investment categories
• Start costing Committee of Adelaide and Business SA top ten recommendations
• Inquiry in to age prejudice and SA recruitment industry – promotion of part time jobs
• Put journalists back in charge at The Advertiser and get back to investigative journalism and hard reporting
• Allow bands to play in CBD and suburban pubs up until 1.00 am