Towards a Blueprint for Revitalising Rural and Regional Australia

You hear a great deal said about how the pace of today's economic change is too great for rural people to cope with, about how it must be slowed and moderated to accommodate the special circumstances of the bush.

I have a different view. I know that rural people are at least as capable of creative adaptation as are urban Australians. Faced with the same opportunities, they will prosper in the same way as other Australians. The types of policies that have been so successful in lifting national economic performance, will also work in the bush.

Rather than slowing down the rate of change in rural Australia, we should be speeding it up! Yet we should be speeding it up in a special way - in a way that takes account of the particular characteristics of regional Australia and the particular requirements for rural development.

Most importantly, we should be speeding it up in a way that does not penalise rural people for past national mistakes. In a way where they are not asked to carry the burden of past over-regulation of agricultural markets; not held responsible for poor national water management since European settlement ; not blamed for the land clearing policies of past state governments; and where the consequences of past national under-investment in rural education, communications or infrastructure are not overlooked.

To achieve faster change we need:

• A higher rate of growth in business investment and capital formation
• A faster rate of increase in the level of rural education and human skills - or put another way, a higher rate of growth in human capital formation; and
• An increased rate of technological progress in rural industries and services.

I know that to many, these three truths are not self-evident. Common sense tells us that technological progress displaces workers. And our common sense is not wrong! Faster technological progress has indeed displaced workers in some industries. Yet this has been accompanied by declining not rising national unemployment.

During the period when the rate of unemployment grew the fastest - the 1970s - the rate of technological progress was the slowest. During that period too, the rate of business capital formation was poor - much slower than the rate of growth in the labour force.

We must learn from this national history. The policies that have resulted in faster national growth and lower unemployment have not been particularly popular. They include cuts in government spending, reduced protection against imports, privatisation of public enterprises, deregulation of markets, National Competition Policy and workplace reform.

Because the period during which these policies have been applied has coincided with a period of poor economic performance in rural Australia, they have become even more unpopular in the bush than they have been in urban Australia.

Some Impediments to Rural and Regional Growth

Before I turn to highlight some serious impediments to rural development, let me make a couple of very positive points.

First, the national program of economic reform, covering the past two decades, has brought benefits to the bush, as well as to urban Australia. These include prices for fuel, electricity, telephones, handling and storage, postage, rail freight, stevedoring - all of which are lower than they otherwise would have been. And that is not to mention interest rates and the cost of imported plant and equipment and motor vehicles. The benefits of economic reform are very real!

Second, there are further economic reforms in the pipeline that will bring additional benefits to rural Australia. These include the introduction of the GST and, importantly, the business tax recommendations of the Ralph Committee. Rural Australians should loudly applaud all of these initiatives and should be particularly vigilant in monitoring the passage of the business tax package through the Senate.

Why is it that after receiving all these "dividends" from economic reform, many in country Australia are still battling? Part of the answer lies in cyclically low commodity prices and before that in unfavourable seasonal conditions.

But these factors do not provide the whole story. The economic policy chain is only as strong as its weakest links. And there are some weak links that impact particularly on the process of regional development.

These weak links include under-investment in rural education and training; poor infrastructure, especially communications infrastructure; excessive regulation of agricultural marketing; "crowding out" of private sector biotechnology development; and, crucially, the attenuation of property rights for land, water, native vegetation and forests.

Education, Training and Communications

The proportion of farmers with formal post-school education is less than half what it is in the general population. Yet farm businesses that have people with tertiary agricultural qualifications in the management team generate incomes more than 40% higher than those that don't.

This situation reflects a community failure to invest adequately in young farmers.

Fortunately there are solutions available that will speed the rate of human capital formation amongst existing farmers. These rely on investing in farmer training in such a way that they will generate their own "social capital" and continue the process themselves. The recently-reviewed Nuffield Farming Scholarship scheme is an outstanding example. The problem is that we are underinvesting in such programs.

It is self evident that in today's world, communications technology is critical to increased business efficiency. This is especially true in regional Australia. Yet you only have to travel in rural areas, as I do, to see how poorly rural people are serviced.

It seems strange to me that many see the answer to this problem being in continuing public ownership of telephone companies. After all, the existing inadequacies have emerged in a regulated environment! Why should we expect that more regulation, rather than less, will propel us to a solution?

Agribusiness and Biotechnology

Despite being a leading exporter of agricultural products on world markets and despite being a world leader in some areas of bio-scientific research, Australia has neither a world-scale agribusiness corporation nor a world-scale life-sciences business. Yet these businesses are growing rapidly in other parts of the world and they are a vital part of the circuitry in the rural development process. I believe that the answer to both questions is related to the way we have managed agricultural marketing and rural research as public-sector activities.

Following deregulation, today's wool market is at last emerging as a commercially-driven business. Product and process innovation is picking up pace and new marketing, pricing and risk-management systems are coming into play.

The progressive deregulation of the dairy industry has, at least until now, provided handsome dividends to farmers and processors alike. Today we have a world-class industry.

The Government has recently proposed a compensation package designed to facilitate the final stages of industry deregulation. Just the kind of package that is needed to encourage the industry to continue its drive for productivity growth and international competitiveness.

Deregulation of the domestic grain market has turned farmers from being agripoliticians into becoming shareholders. As shareholders they will drive the same creativity and commercial acumen that the shareholders in Wesfarmers have done for so long. And they will harvest the benefits, in the form of issued shares that reflect real value, and lower marketing costs.

Yet when it comes to export grain and sugar marketing, a line is drawn in the sand. It is true that in world markets it is sometimes possible to increase prices by having a single desk exporter, though I am not convinced that commercial arrangements could not be developed to get the same result. What we need to understand, however, is that for as long as statutory arrangements remain in place we will continue to deny ourselves the opportunity to develop one or more internationally competitive agribusiness companies.

The reason is that to prosper in today's world such companies need to become global multi-product businesses. Thus they must be free to merge with each other and to expand their operations in other countries. They will also have to endure the cold winds of competition, if they are to become truly efficient.

Strong Australian agribusinesses will help transform precision farming from a concept to a business reality, with all of the attendant benefits for reduced chemical, energy and water use and better soil management. But most importantly, as service industries they are labour-intensive, creating increased income and employment in rural areas.

The nature of the impediments to the development of private bioscience in Australia is a little more difficult to explain in a few sentences. Let me say that the rural R&D Corporations have my full support, as does continued government funding for rural research.

But I do believe that National Competition Policy should be carefully extended into these areas, in particular the principle of competitive neutrality. Service provision should be made contestable, so that private agribusiness can reach its full potential.

Attenuation of Property Rights

I am very strongly of the view that we in this country must do a great deal more to sustainably manage our land, water, vegetation, forest and fishery resources. At the same time I am deeply concerned at the manner in which we are tackling many of these problems.

Property rights are the bedrock on which market economies are built. Trust is the lubricant that keeps the wheels of market economies running smoothly. While property rights are certainly not inalienable, alienation without compensation can destroy the very trust that lubricates the business transactions on which economic development depends.

There are very complex issues in defining property rights to irrigation water or to rural land. Yet farmers have made past investment decisions on the basis of legitimate assumptions as to what those rights entailed. If it is necessary, for conservation purposes, to divert water to the wetland habitats of native birds, that is a decision governments are entitled to make. But not without compensating the farmers for the attenuation of their reasonably expected right to irrigation water!

In the forestry area, the issue is comparable. If land has been allocated for commercial logging and the Government wishes to convert that forest to conservation uses, it certainly has a right to do so. But if it does so without adequate long-term compensation, it makes resource allocation in forestry into a highly risky business.

Conservation must be achieved in many of these areas. It must be achieved in the community's interest; but rural Australians alone should not be left to carry the costs of measures judged to be in the whole community's interest. Of course compensation must be paid and, if we are to continue to have rapid economic growth, it must be paid without reducing government saving. This means higher taxes or reduced government spending elsewhere.