Structural Adjustment in Australia

Andrew Beer Regional Studies Association

Conference Izmir 2014

Agenda

• The findings

• Re-thinking the issues

– Structural adjustment as political and intellectual warfare

Background to the Study

• RRRDG

– MMAL Closure and its study

– Other closures

• What to do, what not to do

• The questions

– What is the nature of structural adjustment in Australia and why has it taken this shape?

– What forms of structural adjustment are justified, and which ones not?

Case Studies

What Do We Find?

• The sheer number and total cost of structural adjustment measures:

– More than $88bn committed between 2000 and 2012

• And don’t mention his brother

– The diversity of sectors ‘adjusted’

– The frequency of repeat ‘adjustment’ packages

– The significant role of the Australian Government

• Not State or local government

AUSTRALIAN STRUCTURAL ADJUSTMENT PACKAGES SINCE 2000

HIGHER EDUCATION Collaboration and Structural Reform Fund (CASR) Diversity and Structural Adjustment Fund Structural Adjustment Fund (SAF) ENVIRONMENT, WATER and CLIMATE CHANGE Climate Change Adjustment Program (CCAP) Clean Energy Future (CEF) Plan Latrobe Valley Industry and Infrastructure Fund (LVIIF) Jobs and Competitiveness Program (JCP) Ipswich Regional Recycled Water and Economic Structural Adjustment Strategy (IRRWESAS) Water Smart Australia (WSA) Water for the Future Murray Darling Basin Plan Restoring the Balance in the Murray-Darling Basin Strengthening Basin Communities Program On-Farm Irrigation Efficiency Program (OFIEP) Strategic Sub-System Reconfiguration Program FarmBis Farm Help FarmReady Briquette Restructuring Package Green Building Fund

Clean Technology Investment Program Clean Technology Food and Foundries Investment Program Clean Technology Innovation Program Carbon Farming Initiative (CFI) Carbon Farming Futures Indigenous Carbon Farming Fund Biochar Capacity Building Program FISHING and MARINE PARKS Moreton Bay Marine Park Structural Adjustment Package Securing Our Fishing Future Package (SFFP) Great Barrier Reef Structural Adjustment Package Fisheries Adjustment Assistance Package (FAAP) from 2013 Victoria’s Marine National Parks and Sanctuaries Compensation Scheme Recreational Fishing Community Grants Program (RFCGP) FORESTRY Tasmanian Forest Industry Development Programme Tasmanian Country Sawmills Assistance Programme

Tasmanian Softwood Industry Development Programme Tasmanian Forest Contractors Exit Assistance Program Tasmanian Forest Contractors Financial Support Program NSW River Red Gum Structural Adjustment Package (RRGSAP) Forest Industry Structural Adjustment Package (FISAP) South-West Forests Structural Adjustment Package Tasmanian Innovation and Investment Fund (TIIF) North West and Northern Tasmania Innovation and Investment Fund (NWNTIIF) North East Tasmania Innovation and Investment Fund (NETIIF) Eden Regional Adjustment Package (ERAP) Our Forests, Our Future North East Tasmania Micro Program (NETMicro) AGRICULTURE Dairy Structural Adjustment Program Scheme 2000 (DSAP Scheme) Supplementary Dairy Assistance Program (SDA) Sugar Industry Reform Package Sugar Industry Reform Programme (SIRP 2004) Tobacco Grower Adjustment Assistance Package (TGAAP) Premium Fresh Tasmania Regional Food Producers Innovation and Productivity Program (RFPIPP)

MINING and MINERALS Hunter Advantage Fund (HAF) Illawarra Advantage Fund (ILAF) Illawarra Region Innovation and Investment Fund (IRIIF) Port Kembla Industry Facilitation Fund (PKIFF) Beaconsfield Community Fund Steel Transformation Plan (STP) Coal Sector Jobs Package (CSJP) Point Henry Aluminium Smelter MANUFACTURING Textile Clothing the Footwear Structural Adjustment Package (TCF-SAP) TCF Strategic Investment Program (SIP) Scheme TCF Post-2005 Strategic Investment Program Scheme Automotive Industry Structural Adjustment Program (AISAP) Automotive Competitiveness and Investment Scheme (ACIS) Structural Adjustment Fund for South Australia (SAFSA) South Australia Innovation and Investment Fund (SAIIF) Innovation and Investment Fund for South Australia (IIFSA) Geelong Investment and Innovation Fund (GIIF)

Bridgestone Automotive Transformation Scheme (ATS) Australian Paper’s Maryvale Pulp and Paper Mill Clothing and Household Textile Building Innovation Capability Scheme (BIC) Textile, Clothing and Footwear Strategic Capability Program (TCF SCP) Textile, Clothing and Footwear Small Business Program (TCF SBP) MISCELLANEOUS Wide Bay Burnett Structural Adjustment Package Newcastle Structural Adjustment Fund (NSAF) South East South Australia Innovation and Investment Fund (SESAIIF) Scottsdale Industry and Community Development Fund (SICDF) Insulation Workers Adjustment Package Insulation Industry Assistance Package Queensland Workers’ Assistance Package Regional Solutions Program (RSP) Sustainable Regions Program Regional Partnerships Program Queensland Commercial Horse Small Business Emergency Assistance Scheme Rural Resilience Package Commonwealth Flood Assistance Package for Central and Northern New South Wales and Southern Queensland

Federal Flood Recovery Fund Federal Flood Mitigation Programme Approved Supply Chain Improvements Program Australian Government Disaster Recovery Payment (AGDRP) Exceptional Circumstances Relief Payment (ECRP) Exceptional Circumstances Exit Grant Exceptional Circumstances Advice and Retraining Grant Exceptional Circumstances Relocation Grant Murray-Darling Basin Small Block Irrigators Exit Grant Murray-Darling Basin Small Block Irrigators Advice and Retraining Grant Murray-Darling Basin Small Block Irrigators Removal Grant Live Animal Exports – Assistance to Individuals Live Animal Exports – Business Assistance Tourism Assistance Package (Queensland natural disasters) Business Support Package (Victorian bushfires) Tourism Industry Support Package (Victorian bushfires) Victorian Bushfire Business Investment Fund (VBBIF) NBN Industry Assistance Package (Tasmania) Tasmanian Health Assistance Package

Structural Adjustment Programs

• Some very large: – The Dairy Structural Adjustment Program: May 2000 to December

2008 had a total budget of $1.63bn. – The Automotive Competitive Investment Scheme: 1st of January 2001

with an anticipated close off of 2015, was budgeted to cost $7bn. • Replaced in 2011 by the Automotive Transformation Scheme (ATS).

• Some very small: – As of January 2013 only two individuals had received assistance in

relation to the creation of Marine Protected Areas in Tasmania. • A transitional assistance payment was made to a fisher in relation to the Port

Davey/Bathurst Harbour Marine Nature Reserve to compensate for increased operating costs.

• The other was a fisher affected by the creation of the Kent Group Marine Nature Reserve. Financial assistance was provided for the acquisition of new fishing gear and he was given conditional continued access to the multiple use areas of the MPA.

• Financial assistance provided to both fishers was approximately $50,000

Structural Adjustment Programs

• More commonly, however, program costs range from $5m to $500m. Examples include: – The Moreton Bay Marine Park Structural

Adjustment Package - $15.1 m;

– The Structural Adjustment Fund for South Australia - $45m of Commonwealth funding, plus $10m of SA Government monies;

– Illawarra Advantage Fund - $10m

– Regional Food Producers Innovation and Productivity Program - $35m.

Who Tends to Receive Assistance?

• Two largest recipients – Manufacturing

• Productivity Commission (2012) notes this sector tends to receive more support than any other

– Agriculture • Often assisted for environmental as well as economic

adjustment reasons – Eg the impacts of water buy backs and/or partial closure of

fisheries/timber harvesting

• But other sectors can receive support – Eg Higher education

Who Tends to Receive Assistance?

• A spectrum of structural adjustment packages:

– At one end, large programs targetted to extant industries to assist them adapt (eg automotive)

– At the other, small community programs tied to announced closures and aimed at reducing the impact on regions or communities

What Does the Literature Say?

• Considerable literature on the topic, but dominated by economic perspectives – Eg Productivity Commission (2001), Grattan Institute

(2011) • Key critiques

– Program objectives not adequately specified at start, so hard to evaluate outcomes

– High cost per job created – Often directed to industries already on the verge of closure – Limited evidence of effectiveness – Adds to the cost burden on viable businesses – Job seeking for displaced workers best dealt with through existing

programs – eg JobsNetwork, Centrelink etc

• A body of evidence that is, overall, highly critical of structural adjustment programs – But why do they persist?

Types of Adjustment Package

• Industry Restructuring

– To make the industry as a whole more sustainable, can include exit assitance

• Frequent in agriculture

• Enterprise assistance

• Labour market assistance

• Inward investment

Industry Assistance – Eg Dairy Industry Restructuring, Grape Industry etc

Table 1 Risks and Benefits of Industry Restructuring Programs for Affected

Communities

Benefits Risks

Ensures the long term viability of remaining

producers

Enterprise focus means that

the impact on communities is overlooked

Overcomes structural weakness in the industry Short term solution to a long term problem

Achieves environmental or other goals Further intervention may be required

Reduces the risk of rural poverty – and

associated social problems

May encourage ‘lock in’ if genuine

restructuring not achieved

Achieve critical mass in production,

allowing emergence of a more competitive sector

May enable focussing on high-value parts of

value chain or a diversification into related

industries.

Compensates producers for the cost of

government decisions

Enterprise Assistance eg Holden

Table 2 Risks and Benefits of Enterprise Assistance for Affected Communities

Benefits Risks

Creates a ‘level playing field’ for Australian producers in

recognition that other nations provide support to key

industries

Supports businesses which will

not be viable in the long term

Can provide time for a region, community or economy to

adjust

Public expenditure ‘crowds

out’ more profitable emerging

industries and blinds policy

makers to alternatives

Can assist the introduction of new technologies, with spin off benefits throughout the

economy

Cheaper than the policy alternatives, including the possible cost of social security outlays

and/or the loss of economic infrastructure

In some cases, supports industries with substantial

multipliers within the economy

Need to provide assistance on

an on-going basis

Slows things down; buys time to allow supply chain and

wider economy to diversify Creates institutional ‘lock in’

Labour Market Programs Table 3 Risks and Benefits of Labour Market Programs for Affected

Communities

Benefits Risks

Ensures full use of the skills

within the workforce and can

retain skills where possible Fail to provide the assistance workers need

Helps stimulate economic growth

Redistribution of jobs – with displaced workers simply

crowding out new job seekers

Reduces dependency on income

support payments

Failure to account for the education and skills of the

workers

Raises self esteem of displaced

workers Timeliness – insufficient time to respond appropriately

Fills areas of workforce need

Efforts misplaced or mis-directed: little achieved for the

effort

Reduces social/family issues, poor

health outcomes Failure to result in employment

Can focus the co-ordination of

services

Inward Investment Progams

Risks and Benefits of Inward Investment for Affected Communities

Benefits Risks

Scope to generate new industries Investment incentives ‘leak’ outside the region

Economic infrastructure secured

by on-going activity

Simply displaces commitments that would have taken

place anyway

Skills retained in the region Too much paid per job

Boost to regional confidence New enterprises fail or leave

Maintain the rate base for local

government

Local businesses unable to secure funding because of

grant conditions

Help reposition existing industry

on a more high value part of value

chain

Lack of local ‘embeddedness’; activities may anyway be

shifted abroad by multinational firms as and when

conditions change or support ends.

Maintain entrepreneurial base in

the region

Incentive payments given when other expenditures would

have been more effective

Structural Adjustment as Political and Intellectual Warfare

• The paper concludes that when you consider the counterfactual – what would have happened in the absence of assistance – all forms of structural adjustment are justified, except enterprise assistance

• The paper also concludes that there is now an evidence base that allows us to distinguish between more and less effective forms of adjustment assistance

Structural Adjustment as Political and Intellectual Warfare

• And the conflict

– Australian Government now sees employers as weak for surrendering to the demands of unions and making themselves uncompetitive

• sees adjustment as dependent upon increased wages flexibility – SPC Ardmona

– The car manufacturers

Structural Adjustment as Political and Intellectual Warfare

– Which should cause us to question three models of adjustment

• The European model – costs borne by society and government, and strong public leadership in this area

• The American model – free markets, accept volatility in national economic performance and de-regulate wages

• The British and Australian model – accept job losses and long term structural unemployment, force productivity increases through inflexible labour market arrangements, no effective government engagement

Structural Adjustment as Political and Intellectual Warfare

Structural Adjustment as Political and Intellectual Warfare

Structural Adjustment as Political and Intellectual Warfare