Patient investment is needed to prevent rising unemployment

One of the great challenges for 2018 is to prevent unemployment rising.

That we began the year with a rate of around six per cent was a major achievement given the closure of the automotive industry. There is a risk that unemployment could rise over coming months if measures to contain the impact of the auto closure are not sustained.

To contain unemployment, we have had to maintain high levels of infrastructure investment and provide direct assistance to companies to diversify. A great deal of support has also been provided to workers to enable successful transitions. It is essential that all of this effort be sustained over the next few years while we wait for new projects such as the submarine and Future Frigate projects to come on stream.  Any significant reduction in total investment in South Australia, particularly in infrastructure spending, would lead to rising unemployment in the current environment. To avoid this, we need to maintain public sector investment in infrastructure at present levels of around $2 billion per annum.

There is another potential contributor to rising unemployment that can be avoided. There is significant pressure on the new Marshall Government from Business SA to reduce public sector employment to the national mainland average. This is not a trivial proposition. It would lead to the loss of around 19,000 public servants, delivering a blow to consumption expenditure that would have significant flow-on impacts throughout the South Australian economy. While the Liberal Party has said that it will not pursue a major public sector employment reduction strategy, it is committed, like the previous government was, to agencies delivering efficiency dividends. Continued imposition of efficiency dividends would lead to substantial jobs losses in the public sector, intensifying competition for vacancies in the state.

The new Liberal Government has said that it will drive economic growth and jobs by reducing government taxes and charges. History tells us that this won’t deliver a major jobs dividend relative to investment in physical and social infrastructure and targeted assistance to companies. While the new government will want to do some things differently, it would be prudent for it to retain what has worked well. Direct support to companies to accelerate diversification and foster innovation is consistent with what our competitor nations are currently doing to support industrial transformation. This is particularly important in a small firm economy like South Australia where links to global value chains are not as strong as we would like and support for innovation
is low by international standards.

What is missing in the new government’s policy arsenal is a strong policy statement on technological and workplace innovation. Just how are we going to respond to the digital revolution taking place around us – the so called Fourth Industrial Revolution. How can we accelerate the uptake and diffusion of advanced technologies to ensure that South Australian firms remain globally competitive? Like the former Labor Government, the new Liberal Government has plenty of challenges on its hands when it comes to modernising and diversifying the South Australian economy. The previous government deserves credit for its efforts in this respect. There is little doubt that progress has been made in the face of enormous global and domestic pressures. While the automotive closure has been a significant negative economic shock it has acted as a catalyst for change. So to has rising energy costs and the blackout which led the Weatherill Government to deliver a major energy sector reform program that national regulators proved incapable of delivering. South Australia is now a leader in sustainable energy systems development. A liability is now being transformed into a growing source of competitive advantage for South Australia.

The Liberal Government has much it can build on. Steven Marshall and his new cabinet have set an ambitious program for their first 100 days. Over the next few months they will be formulating their first State Budget. Maintaining existing levels of government expenditure would help to put downward pressure on unemployment. During the first month or so it would be prudent to develop a Jobs and Industry Growth strategy that helps to increase our rate of full-time jobs growth and accelerate industry diversification. This is no easy task and will require a great deal of support from the Federal Government as an active coinvestor in a pipeline of infrastructure projects and targeted support for industry diversification and modernisation.

While we shouldn’t expect an incoming government to acknowledge the successes of its predecessor, it would be unwise at this point in our history for the new administration to ignore them.

John Spoehr is director of the Australian Industrial Transformation Institute at Flinders University
@JohnSpoehr

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