Blandy: SA must abandon “sook” capitalism
The idea that Rob Chapman, good as he is, can get South Australia out of its current economic mess with a $15 million budget is plainly ridiculous. It is more of the same failed strategy that successive South Australian Governments have been following for a long time.
For example, we already have a large Department of State Development (DSD), whose website says it provides a full range of government services, delivery functions and support activities to drive economic transformation and wealth. The number of programs to help businesses that the department runs is, indeed, substantial – in number, objectives and funding.
As another example of the many agencies of the South Australian Government that play some role in economic development and creating employment, we also have an Economic Development Board (EDB), established in 2002, whose purpose, according to its website is “to maximise the value of emerging economic opportunities for South Australia, so that South Australia is recognised as the most competitive place in Australia in which to invest and grow a business”.
The EDB’s major activities include:
- Advising the Government of the day on what is needed to maximise economic development and identify what needs fixing, changing or improving.
- Championing processes that make South Australia the most competitive place to do business.
On 11 August last year, the EDB published a report, prepared by KPMG and engaging more than 2500 people in its research, Shaping the Future of South Australia. The report identified no less than 41 actions, 37 of which were priority actions.
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Are we to conclude that the Department of State Development and the Economic Development Board are inadequate for the task, but that Rob Chapman will fix it all up with his $15 million budget?
We ought to conclude instead that government-led economic development is a very poor strategy to produce fast economic progress and rapid job growth.
"The idea that maintaining government spending is important for the overall number of jobs in South Australia is wrong. It simply substitutes government jobs for jobs in private businesses, possibly with a reduction in the total number of jobs at the same time."
This strategy makes business the handmaiden of government rather than being self-reliant capitalists bent on carrying the world before them and employing people in order to achieve this objective.
South Australia has invented a sort of sook capitalism, a corporatist approach to economic development where an excessively-powerful State Government “leads” business.
As Winston Churchill said in war-torn Britain on 21 March 1943: “We must beware of trying to build a society in which nobody counts for anything except a politician or an official, a society where enterprise gains no reward and thrift no privileges.”
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The answer to our economic difficulties and scary unemployment outlook lies in the State Government reducing business’s costs and getting out of the road. Like everybody else, the Government has no idea what specific businesses will succeed in South Australia. It just likes to fool the electorate with plausible-sounding generalities.
Its business attraction programs are a fruitless subsidising of businesses that cannot stand on their own two feet in the South Australian economy. They should be abolished and the savings used to cut the Budget deficit. It should eliminate the subsidies offered to preferred businesses to set up or establish here.
Other than an obvious list of antisocial activities, any small business – with fewer than 20 employees, say – that wants to start in South Australia should not have to get permission from the Government and its public servants. Such a business should have the laws and regulations that might stop it from starting up waived (and waived for any small competitors, too). And it should be prosecuted if it damages its employees’ health or the wellbeing of South Australian citizens.
If this works well for the South Australian community, the waiving of these regulations should be extended to medium and large businesses as well. This would give larger established business a stake in the success of small start-ups.
As it reduces the volume and scope of business regulation and business attraction programs, the South Australian Government should significantly reduce the employment of public servants overseeing the implementation of business regulation and business attraction.
As its expenditure on inducements for and regulation of businesses falls, the Government should reduce the size of its budget deficit, not increase its expenditure in other areas. This will increase business investment because the likelihood of higher taxes on business in the future will be reduced.
As research by the International Monetary Fund has shown (Antonio Spilimbergo, Steve Symansky and Martin Schindler, IMF Staff Position Note: Fiscal Multipliers, SPN/09/11, 20 May 2009, pp.3-4), in small open economies like South Australia’s the Keynesian government expenditure multiplier is small and may even be negative. The idea that maintaining government spending is important for the overall number of jobs in South Australia is wrong. It simply substitutes government jobs for jobs in private businesses, possibly with a reduction in the total number of jobs at the same time.
The new winning jobs strategy advocated in this article will take time to put in place, but the effect on business expectations of a Government commitment to such a strategy will be immediate and strong. As a result, the rate of rise in unemployment will be cut dramatically. Jobs growth will increase.
In due course, jobs growth will accelerate and the unemployment rate will fall, possibly rapidly. This has been the experience with this sort of strategy in New Zealand and Tasmania.
Richard Blandy is an adjunct professor in the Business School at the University of South Australia. Read his economic analysis every Thursday in InDaily’s Business Insight.
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