SUMMARY OF SECURING A SEAT IN THE BOW OF THE BOAT - A REVIEW OF 'LEADING STATE'

This review, dated 27/7/92, examined Queensland - Leading State, an economic development policy released by the Queensland Government in April 1992. It approaches the subject from an unconventional perspective, by considering the capability of the economy to initiate and sustain growth, rather than considering short term growth prospects or immediate initiatives.

INFORMED REACTIONS Observers from business, academia and the community welcomed the recognition which Leading State gave to the need for economic performance, but expressed reservations concerning its adequacy and direction.

CONTEXT Whilst Queensland has achieved relatively high absolute growth by Australian standards, per capita growth has been mediocre and investment performance has been poor both in terms of its quantity and quality (ie emphasis on an apparently low productivity industry - tourism), because the economy remains under-developed. Unemployment seems likely to remain very high. The Queensland community faces a challenge to it's future affluence and status in the rapidly developing Asia / Pacific region which requires the creation of effective means to initiate and sustain high productivity enterprises and industries.

ASSESSMENT Leading State was prepared through an administrative, consultative and political process. It did not attract community ownership or commitment on which it's success will ultimately depend. Leading State was similar to Quality Queensland in the method by which it was prepared, and in the lack of support achieved. Leading State covered many aspects of the economy, and provided a philosophical base ('market enhancement') for government's role in economic management. This provides a standard to both assess, and further develop, government programs. The 'market enhancement' philosophy seeks to avoid replacing market failures, with government failures (because government 'assistance' as traditionally practised in Australia often had a debilitating effect on the industries and enterprises concerned). There were however many matters not considered, of which the most important was any substantive assessment of the functional effectiveness of the Queensland economy, which government's role is said to enhance. Without such an assessment actions to enhance the real economy could not be identified. Leading State includes some initiatives consistent with its stated philosophy, but many others are not. One cause of this inconsistency may be that public sector change was based on the assumption that the key goal was efficient delivery of public goods and services. Agencies organised on this basis then have no motivation or means to seek 'systemic solutions' to market failure (rather than direct intervention) though the former is essential if economic development is really to be accelerated. The proposed 'market enhancement' approach is insufficient in any event because: market mechanisms do not work well in a poorly developed economy; sources recommending a 'free market' approach do not show signs of understanding what makes Asian 'development states' successful; and the assumption that 'direct' intervention is the only form of intervention is invalid. 'Market enhancement' may be contrasted with 'market facilitation' advanced in the mid 1980s. The latter saw government as actively (but indirectly) enhancing market mechanisms rather than the 'market enhancement' notion of keeping out of their way, or using limited targeted direct intervention. The former did not, however, consider the need for a complementary political process, if it was to be successful. Whilst Leading State is a useful account of existing activity, it provides little evidence that its programs will succeed. The process of public sector change has shown that good ideas in theory, can be difficult to put into practice.

CONCLUSIONS The Commonwealth's One Nation package in March 1992 for recovery from the recession seeks to get the Australian economy moving and can be likened to launching a boat full of disorganised rowers into the rapids above a waterfall. Even if it gets them moving it may not be an effective or sustainable solution (because of the lack of attention to fundamentals to head off another balance of payments problem). Leading State risks merely 'securing a place in the bow of the Commonwealth's boat', because it does not establish a viable method to manage economic development. Queensland is merely leading Australia towards economic backwardness in the Asia / Pacific region. A substantial increase in the rate of improvement in productivity (to avoid either declining living standards, or escalating foreign debts) is vital if growth is to be sustained, unemployment reduced and living standards maintained. This can not be achieved through existing economic arrangements and institutions in Australia. The central role of interest group politics in Australia's economic adjustment may be the major constraint on achieving more rapid increases in productivity and competitiveness.