Redefining economic success Centre Liftout South Australia

South Australia recognises that past economic successes will not deliver future success. The new Government is determined to reshape both the state and the way business is conducted. John Arbouw talks with Treasurer Kevin Foley about the new state of affairs.

'Good politics is usually bad economics and good economics is often bad politics. The trick is to find the balance.' – Sir Thomas Playford. If there are defining moments in history then South Australia has had two of them in the periods between 1938 and 1979 and both were premiers. Sir Thomas Playford took a predominantly agricultural-based economy and fashioned a strong manufacturing sector while Don Dunstan shaped a socially just society and made the state an enviable centre for the creative arts. While Playford and Dunstan were diametric opposites in politics, style and substance, their legacy has endured and no premier or government since has been able to find that critical balance between good economics and good politics. It is why the Labor Government of Mike Rann has gone back to basics to devise a new economic strategy rather than graft bits on to the existing industrial and economic infrastructure left by his predecessors. In what must be one of the boldest experiments in state politics, Rann set up the Economic Development Board comprising business leaders with connections on both sides of the traditional political divide (see separate story).

They may not be fellow political travellers but they share a common desire to see South Australia return to its economic place in the sun. Most commentators describe South Australia as the rust belt despite the state producing 50 percent of Australia's cars. Certainly, if you take away the car industry, which has been under threat on many levels for years, SA's overall manufacturing industry would be in trouble. On most economic indicators, SA has not been performing as well as some other states. In 2000-01, gross state product grew by only 0.7 percent compared to a national figure of 1.9 percent. During the past decade SA's share of the national economy fell by 13 percent. There have been some bright spots. Exports of wine, food and cars have increased by 66 percent from $2.4 billion in 1998-99 to $4 billion in 2001-02. Exports account for nearly 20 percent of the state's income. Despite the political fall-out and resignation of former Liberal Premier, John Olsen over the Motorola affair, South Australia has been able to attract global corporations such as EDS, BAE Systems, SAAB Systems, Dana, BT Financial Group, and JP Morgan Chase to locate to Adelaide. It is a good achievement because in a bidding war for business, SA doesn't have the clout of the other states. "As a government we can't find solutions to all our problems, but the first task is to recognise that there are deficiencies in the economy and be open and honest about them," says Kevin Foley, Treasurer and Minister for Industry, Investment and Trade. "South Australia has had a tragic history in raising expectations. The next big project is always going to save South Australia. This has been a factor in our history of post-war economic development. "During the Playford years this was true but he built up a large manufacturing base behind every protectionist measure he could find. A cold hard analysis of that in the current global economic circumstances of lower tariffs and global comp- etition shows that South Australia is exposed." The development of a new economic blueprint is critical on several levels not least the need to reverse the brain drain of young people leaving the state to look for better opportunities elsewhere.

An SA Business Vision 2010 Indicators report says if "South Australia is to sustain prosperity, it will need to shift the structure of the economy towards high income and high growth sectors". There is little doubt that progress has been made. During the past year the economy has reaped the rewards of good seasons and good prices for its primary products. Exports of cars, wine and seafood were helped by the low Australian dollar. Adelaide, like other state capitals, has also had its own property boom fuelled by the Federal Government's first homeowners scheme and low interest rates. South Australia has also learned from its wine, defence and car industries that clustering new businesses around established industries is a benchmark for economic growth. SA was also one of the first states (1979) to recognise the role of technology parks as a breeding ground for innovation. The SA Technology Park, in Adelaide's northern suburbs, aims to integrate university research with private sector commercial imperatives operating in a specially designed suburb incorporating high tech housing in an environmentally pleasing setting. It is where the 1990s concept of a multi- function polis finally found a home. Whether it becomes Australia's answer to Silicon Valley remains to be seen, but the park has already attracted the likes of SAAB Systems, Tenix, Vision Systems and Motorola. "We, as a government, have to acknowledge that it is no good providing incentives to industries or build and grow industries which are not here for the right reasons. And this is that we have competitive advantages and we are a location that provides comparative advantages," Foley says. "We want companies that can come here and make a dollar without government assistance. I don't have the budgetary strength to do that. One of the competitive advantages I don't have compared to the other states is money. "What worries me and I have had a few sleepless nights over this is that one morning NSW Premier Bob Carr or Victorian Premier Steve Bracks are going to wake up and start using their cheque books to attract industry."

The howls of outrage from South Australians when Adelaide lost the right to stage the F1 Grand Prix to Melbourne is a reminder that in a bidding war South Australia will come off second best. Foley can sleep better at nights following the decision by Carr and Bracks to limit incentives to attract businesses. Queensland Premier Peter Beattie is expected to eventually follow suit. Economic arguments between the wet and dry side of the equation are only esoteric theories to workers who need jobs or the small businesses that feed off and supply a car manufacturing industry. "Look, the Mitsubishi situation is quite simple," Foley says. "If Mitsubishi had not stayed, our state would have lost 8000 direct jobs and we would have seen a 1 percent lift in unemployment that would have been locked in there for the best part of the decade. "I am on the dry side when it comes to economic policy but I knew that economically and socially the fabric of our community would have been torn to pieces if Mitsubishi left. "We knew we were going to have to put money on the table but it had to be realistic. The offer was going to substantial but we also wanted value-add out of this and to be able to point to real new economic activity." To save a new government in seven or eight years time going through the same agony, the government devised a strategy enabling Mitsubishi to commit to South Australia by making its plant far more relevant than others elsewhere in the world.

Mitsubishi has established a major R&D facility that will be designing cars for Mitsubishi worldwide and acting as a training facility for its engineers from around the world. "What the Mitsubishi deal means is that some of the excellent innovative work being done literally in sheds and backyards of suburban Adelaide can now have the possibility of a commercial outlet," says Foley. "This is a $1 billion investment. It has created 1000 new jobs and it is a long-term commitment by Mitsubishi. "However, Mitsubishi is a one-off. As a government we cannot afford to do this with every industry. It is one of the reasons we set up the Economic Development Board under Robert Champion de Crespigny to provide an economic blueprint and strategy for the state." (see separate story) Foley is quick to point out that there are no easy fixes or that solutions can be found simply by throwing government money at the problem. "We have to be bold enough and gutsy enough to put in place economic policies that will make a difference."

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