Moving beyond Gillman-style economic “groupthink”
One of the disappointing things that the Gillman affair reveals is that “groupthink” has taken grip within the South Australian Government: people of dissenting views are not listened-to (or even wanted).
Groupthink is what led President Kennedy to the Bay of Pigs fiasco in Cuba.
Wikipedia says:
"Groupthink is a psychological phenomenon that occurs within a group of people, in which the desire for harmony or conformity in the group results in an irrational or dysfunctional decision-making outcome. Group members try to minimize conflict and reach a consensus decision without critical evaluation of alternative viewpoints, by actively suppressing dissenting viewpoints, and by isolating themselves from outside influences.
Loyalty to the group requires individuals to avoid raising controversial issues or alternative solutions, and there is a loss of individual creativity, uniqueness and independent thinking. The dysfunctional group dynamics of the “ingroup” produces an “illusion of invulnerability” (an inflated certainty that the right decision has been made)."
The chances that the South Australian Government will make more Gillman-style, “6000 jobs” calls are high, therefore, along with its desperation about South Australia’s bad economic situation.
A mini-budget looms…
Since the height of the GFC in September 2008, South Australia has added a mere 13,000 jobs. Over the same period, Australia has added nearly 1 million. If South Australia had simply maintained its share it would have added 70,000 jobs.
Our unemployment rate is 8.0%, up 1.5% over the last two years. Australia’s is 6.2%, up 0.5% over the last two years.
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Our Gross State Product has grown since 2008 by 1.6% pa; Australia’s GDP has grown by 2.6% pa – itself far below trend.
SA’s business investment has grown over the same period by 3.2% pa; Australia’s by 5.0% pa.
Over the last year for which we have data, new motor vehicle sales in SA have fallen 8% (Australia’s are up 2.6%); established house prices in Adelaide have risen 2.7% (all capital cities’ are up 9.8%); building approvals in SA have fallen 4.2% (Australia’s are up 12.9%); building activity in SA has fallen 1.7% (Australia’s is up 6.9%).
In fact, building activity is now a lower levels in South Australia than at the height of the GFC in 2008.
"To have a good economic future, we must eliminate regulations impeding the start-up and growth of new activities that impose no environmental or health threat, and offer easy capital access and very low taxes to start-up companies for, say, their first three years. We had better not muck around with this, because other places will be doing exactly the same thing."
The 2014 South Australian Budget forecast 1.8% growth in Gross State Product for 2014/15 and 2.0% growth for 2015/16. We will be lucky to make half this rate of growth. Ditto for jobs growth: we are running at half the SA Budget’s expected rate of growth. As a result, we can expect the unemployment rate to edge up to 8.5% by June next year.
There is nothing we can do about this in the very short term. Further, Premier Weatherill assures us he would do it all again, anyway!
But, for the medium-to-longer term, here is my view of what we should be trying to do.
There are two dominating trends for businesses in all advanced countries: the importance of business start-ups and small businesses, generally; and the importance of global supply chains.
Economic success for South Australia is much more dependent on stimulating the start of new businesses and fostering small businesses than protecting failing large businesses.
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American and OECD data show that only new firms are net job creators. Larger businesses are net job destroyers. Because their growth prospects are not as good as smaller businesses, they focus on cutting labour inputs in order to increase profits.
The increase in knowledge, communication and linkage resources available through the internet has strongly raised the international competitiveness and international sales potential of new and small businesses.
Outsourcing of non-core activities to small businesses has become significantly cheaper for large firms, because of the internet. Large firms can now spread their supply chains globally, locating particular activities in countries where there is comparative advantage in doing so, because the whole can be controlled instantaneously, via the internet, from the firm’s global HQ.
Adelaide does not have comparative advantage in car assembly, but it does in parts of car design and component manufacture (as I have shown with two examples, Redarc and ACS).
It also has comparative advantage as a location for highly skilled design, R&D and marketing teams because it is a highly attractive place to live.
To have a good economic future, we must eliminate regulations impeding the start-up and growth of new activities that impose no environmental or health threat, and offer easy capital access and very low taxes to start-up companies for, say, their first three years. We had better not muck around with this, because other places will be doing exactly the same thing.
If we get this right, we can look forward to a dynamic, evolving, future economy of specialised small and medium businesses emerging from a very high rate of start-ups and from some highly-skilled units of Asian global businesses.
The driving forces of our future economy will then consist of high quality, innovative, businesses in agriculture, manufacturing, R&D, marketing, finance, health, education, housing and construction, recreation, retailing and restaurants.
In particular, we are likely to be a standout centre for the creative arts industries: movies, TV programs, computer programming, advertising, photography, apps and artworks of all kinds.
We will have very high average wages and incomes (made affordable by our high productivity, driven by high quality, innovative, globally-competitive products and services).
Our environment will be a warranted source of pride and satisfaction. The (far fewer) unemployed will be more economically secure. Pensioners and self-funded retirees will keep pace with the higher community living standards.
In addition, we will be able to afford a high quality, appropriately-sized, public sector.
Professor Richard Blandy is an Adjunct Professor of Economics in the Business School at the University of South Australia.
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