SOUTH EAST QUEENSLAND HAS AN UNDER-DEVELOPED ECONOMY

Queensland is frequently said to have economic strengths:

• quoted advantages include: good climate and environment; rich natural resources; developed infrastructure; English speaking population; political stability; and an educated population;
• much has been learned from East Asia about how to manage fast growth such as Queensland is experiencing (through micro-economic reform, productivity benchmarking, total quality management, enterprise bargaining). Queensland's position is strong because of the Government's good financial position; sound government management; low cost services; corporatisation; fast tracking of investments; regulation review; commitment to reducing infrastructure costs (eg electricity); strategic plan for ports. Gladstone has potential for unlimited growth as an industrial centre. Tourism has good growth prospects. (Block R. and Bain H., Queensland: The Dynamics of Faster Growth, CEDA Conference on Windows of Opportunity, Prospects for Economic Growth for Fiscal 93, 24/7/92);
• Queensland did well in the recovery due to tourism and population growth. Future prospects for food processing are good. Queensland has sound companies and public finance, though the former find it difficult to obtain capital. Companies are more conservative, and less oriented to get rich quick schemes, because their linkages to rural and mining industries encourage a long term view (Stewart A., Queensland's Biggest Burden - Australia', BRW Qld, 13/11/92, quoting Chairman of Suncorp, Graham Tucker);
• Queensland has financial strengths due to its lack of state debt. Reducing tariffs are an advantage as this cuts the costs for Queensland's export industries. Strategic advantages include: efficient power industries, railways and ports. Queensland's business style is inherently conservative. (Stewart A., 'Business Invests in State of Confidence', BRW Qld, 13/11/92, quoting State Treasurer, Kieth DeLacy);

Dependence Characterises the Queensland Economy:

• Queensland is highly dependant on foreign investors by Australian standards, which has (almost?) the highest level of foreign ownership in the Western world (David A. and Wheelwright T., The Third Wave, 1989). This has some disadvantages. Australia's large foreign debts are partly due to the high gearing ratio of many foreign investors (presumably a tax minimisation mechanism). Australia's weak technological performance has usually been blamed on the dominance of multinationals who served the local market because of tariff barriers, but lacked the scale or the mandate to become internationally competitive through innovation until tariff protection was reduced. This dependence assumes much greater significance as investment sources shift to non Western countries with different cultural traditions (eg where social inequality, racism, limited human rights may be accepted; and where there may be absolutely no sense of giving a 'fair go' to those who lack the ability to fend for themselves);
• Queensland is a branch office state. More than half of firms with > 100 employees have headquarters elsewhere (Johnson R. etal, Profile of Science and Technology in Queensland, QSTEC, April 1987). The relative absence of medium and larger enterprises implies a lack of the top level contacts, knowledge and skills required to control industries and provide a strategic economic perspective to enable governments to effectively manage the economy (see Horne D. The Lucky Country Revisited);
• while 80% of Australia's exports were in agricultural and mineral commodities (the industrial profile of a third world rather than a developed country) these are an even larger percentage of Queensland's goods exports. The factors influencing the profitability of such exports are outside a supplier's control, and have long faced declining terms of trade (ie export prices fall relative to the costs of imports). Queensland achieved less diversification of its economy in recent decades than Australia generally;
• Despite 'free enterprise' rhetoric many firms look to government for assistance when difficulties arise (not to one another or to market opportunities). Local firms have at times been systematically protected. For example, 'agrarian socialism' protected rural producers from commerce by regulation; and government investment supported 'private' firms (eg 45 of 60 listed companies had Suncorp, a large state owned financial conglomerate, as a major investor - Buckley A., 'Suncorp gives the lie to Joh's Promises', Financial Review, 2/3/87). As with tariffs, such protection discouraged innovation to build competitiveness. This protection reflects `traditional corporatism' where privately owned firms are viewed virtually as an extension of the state (see Williamson P., Varieties of Corporatism: Theory and Practice, Cambridge University Press, 1985; Stewart A., 'Private has a Different Meaning in Queensland', Canberra Times, 19/9/88; and Demster Q. 'Waiting for Benefits from Corporate State', Sunday Mail, 1/2/87). Government financial strength has been seen as a measure of economic performance, though it was sometimes achieved at the expense of developing the economy;
• Queensland's private sector did not visibly react to a claim that in financing Compass Airlines, the Queensland Government was providing 'venture' capital, which was essential because of the lack of 'old money' in Australia's egalitarian society (Stubbs J., 'Support for Government role in Compass', Sun Herald, 14/3/93). This shortage of investors reflects the past dominance of the Queensland state, and reflects the limited ability of business to provide the business skills to manage risk. 'Venture capital' correctly refers to risk capital combined with commercial skills to reduce the risk in ventures with good prospects but weak management. No matter how much such skills may be required to reduce investment risk, they could not be provided by public service organisations;

The competition is stronger:

• there has been a constant erosion of local ownership of medium and larger Queensland based enterprises. Furthermore firms find themselves struggling to cope with aggressive interstate competition (Business Queensland, 23/3/93, p11);
• a study of Australia's high value added manufacturing exporters involved relatively few out of 700 who had significant operations in Queensland (McKinsey and Co., Emerging Exporters - Australia's High Value Added Manufacturing Exporters, Report to Australian Manufacturing Council, 1993)
• food processing is a major component of Queensland manufacturing, and is widely seen as an area of obvious comparative advantage especially in exporting to the rapidly growing Asian markets. However a recent analysis showed Australian agribusiness has great difficulty competing in Asia, and Asia does not need Australia. A long term investment strategy (rather than exports) may be required to become a real player in the region (Larkin, Agribusiness and Processed Food Development in SE Asia, (1993) reported by Stephens T., 'Food for Thought', Australian 9/7/93);
• Japan recently produced leading edge products in behalf of Apple Computers because it has greater depth of capital, engineers and expertise in miniaturised manufacturing than the USA. Strategies over many years had `hollowed out' US industrial capabilities by steady progression along the product line through relentless pursuit of market share at the expense of profits, then increasing prices to gain super profits from monopoly supply of key components and a stranglehold on key areas of advanced manufacturing technology (Forster T., 'Silicon Samurai - Japan's IT Takeover', 21C, Winter 1993). Such methods are 'tougher' than Queensland can cope with;
• the standards required for future competitiveness by international business leaders (eg 'Today's leaders Look to Tomorrow', Fortune, 26/3/90) are much more demanding than the general level of debate amongst contributors to Business Queensland (though such debates are now raising local standards).

Queensland's economic support functions are not strong:

• there is little resource support for organised capability in universities or economic associations to enable the workings of a developed economy to be understood, or to show how others achieved one. Such capabilities are not developed in the public sector agencies which are supposed to have economic responsibilities, as compliance with political directives or provision of operational 'assistance' to firms provides no insight into the functioning of a modern economy;
• 'development' is popularly equated with mines, roads, housing, shopping centres or resorts, which is a symptom of the widespread lack of community understanding of economic development issues;
• a 1993 workshop at the Queensland University of Technology focused on the management requirements for 'embryonic' industries (ie those based on innovation with good growth prospects). Participants highlighted the same practical constraints on the operation of such firms which had been suggested for resolution by a report 10 years earlier (Queensland. Premier's Department Towards a Strategy for Technological Development in Queensland, October 1983). Progress in dealing with the practical issues over the decade had been negligible;
• Industrial R&D is an indicator (though not a cause) of a potential for industrial innovation. The spending on R&D by business in Queensland is relatively low by Australian standards (about 6.2% of Australia's total compared with 15% of output and 25% of exports: Johnson R. Profile of Science and Technology in Queensland, QSTEC, April 1987). However, Australia is well behind leading nations in this area (eg Australia's R&D spending is about 1.2% of GDP, compared with 2.8% for USA and Japan. Moreover twice as much is spent by Government (on basic knowledge) as by business (on applied knowledge), which is the reverse of the usual ratio. Australia had a low and declining ranking in technology based exports in the 1980s (Johnson op cit);
• business infrastructure and financial services are deficient (Queensland. Queensland: Leading State, April 1992). Though such services are increasingly globalised due to improving communications, there are severe limits to the effectiveness of such remote linkages;
• Venture capital is a risky business both in Australia and USA but in the USA entrepreneurs 'tend to be supported by quite extensive infrastructure and there is a reasonable well developed community of trained business people to be recruited or otherwise support the venture.... In Australia we face all the risks... but with few of the advantages: a small local market; an embryonic infrastructure; and insufficient management skills to provide a ready pool of new venture management. The thin public market typically denies the opportunity for a float, or permits a float at a much lower multiple' (Hilson B., 'Venture Capital in Australia', in Financing Innovation in Queensland, QSTEC Seminar 1988);
• a well placed observer suggested that: Queensland's economy had been more integrated 10 years ago with more specialised suppliers; banks lack skills available elsewhere to finance firms with orders, and thus demand real estate collateral; commodities are often locked up by marketing boards who lack the flexibility to do business (eg the give and take traders in SE Asia expect); commercial disputes take too long to resolve, and are biased towards those with most money; superannuation is drawing resources away from smaller firms; taxation encourages consumption and discourages production; government policies are unstable; everything is formalised rather than understood as a way to behave; professional and impartial bureaucracies have been reduced; a brain drain is resulting from low real wages; and economic growth is being driven by housing and shopping centres, rather than by business investment;
• there is limited secondary processing of natural resources (Gladstone being an exception).

Analysts often described Queensland as Under-developed in the 1980s:

• Queensland's economic underdevelopment was seen to be a consequence of its peripheral location. Urban functions were concentrated in SE Australia as a result of government policies and spending patterns. Queensland's economy traditionally depended on unstable agricultural and pastoral industries. The growth of independent business capabilities in Australia between 1945 and 1971 is being reversed towards renewed dependence on foreign capital, and as Sydney and Melbourne declined, foreign capital concentrated in the peripheral states (Mullins P. 'Australian Urbanisation and Queensland's Underdevelopment', International Journal Urban and Regional Research, June 1980, pp212-38);
• Queensland was said to have a complacent pre-occupation with tourism and a heavy reliance on minerals, and to have done little to restructure its economy. 'Queensland's industrial base is ill-equipped, ill supported by technological training and research and insufficiently diversified to cushion the State's economy against external market fluctuations and provide its citizens with broadly based security and an equitable share of wealth' (Miskinski J., 'The State We're in', Sunday Mail, 3/3/85);
• Queensland, whose main export commodities (coal, copper and sugar) all face declining markets, was said to have exhibited a classic third world response to changing markets when production was increased to stabilise export revenue (for coal) rather than providing an overview mechanism to enable producers to see the combined effect of this action (Duhs L. and Collyer C. 'The Queensland Economy - Which Way Now?', National Australia Bank Monthly Summary, 1986);
• Queensland's manufacturing industry is well below that characteristic of a normal developed economy (Day P., Queensland Facing the Issues (Mark II), Dept of Regional and Town Planning, UofQ, 1986)
• informal opinions expressed by Stanford Research Institute staff who assembled an economic strategy (Quality Queensland) in 1987 for the State Government suggested that Queensland had the largest gap in the Western world between its communities' consumption levels and their productive capabilities;
• Queensland has grown rapidly for 15 years, but it is an odd sort of growth: old fashioned, low tech, high volume and unprocessed. It has left unemployment high and wages low. Growth in private new capital investment is low, and Queensland has lagged in the sorts of structural adjustments made in other states. Diversification has had a minor impact. Manufacturing has shrunk in relative importance, and tertiary sector growth is mainly tourism. Commodity exports remain bulk and unprocessed and not value added. Agricultural strategies are based on bringing more land into production not on diversification or locking in markets. Marketing boards deal aggressively with buyers and have no interest in developing or serving markets. Horticulture should be doing well but isn't. Only tourism is booming. (Mills B., 'The Last Lucky Country - Old Fashioned Economy keeps Booming Along', Australian Financial Review, 8/9/88);

The economically relevant skills of Queensland's population are underdeveloped:

• Queensland's education and skill qualifications are marginally below those of Australia as a whole (Australian Bureau of Statistics, Census Characteristics of Australia (Queensland): 1991 Census, ABS Cat No 2710.0 (2710.3), Table 12).
• in the early 1980s Australia was seen to be behind in the balance of skills (Ford G. W. 'Human Resource Development and the Balance of Skills', Journal of Industrial Relations', Sept 1982);
• the numbers of graduates in Australia in the pure sciences and humanities is high by international standards (reflecting the 'status symbols' of an affluent community) but very low in applied sciences such as engineering (reflecting an unproductive community) (Unesco Statistical Yearbook);
• Australia has relatively few engineers in its workforce even in relation to other countries with comparable industrial structures ('Australia Needs More Engineers, Changes to Education, Industry Input', Engineers Australia, 5/8/88);
• Australia has a narrowing international advantage in its high level of general and professional education and basic research, but this is not balanced by technical and vocational education (Business Council of Australia, Australia 2010: Creating the Future Australia, 1993);

Queensland's achievements are unimpressive in per capita terms and by international standards:

• Queensland's economy has consistently grown faster than Australia as a whole, and this proved stable over a 15 year period (Long J., Queensland Economic Performance Study, NIEIR, 1985). However, it may not be significant to outstrip Australia's disastrous performance (Massey M., 'Its Viva la Difference', Financial Review, 1/9/92). Australia has suffered long term decline by international standards (down from 4th highest per capita income in 1960 to 16th). Australia's GDP/ capita has become less than half what it was relative to the USA a century ago (Jones B. Sleeper's Awake, 1983). Queensland's population has also grown faster, and its per capita economic growth performance has been no better than the national average. Queensland's gross state product (GSP) / capita, a measure of the productivity of industry and the wealth of the community, remains more than 10% below Australia's national average. Official analyses of Queensland's economic performance have consistently been focused on favourable data (ie avoiding per capita or international comparisons) rather than on identifying scope for doing better;
• despite data showing faster growth, many micro-indicators of economic performance have been weak - especially investment (Reynold's J., 'Performance of the Queensland Economy compared with the Australian Economy - The Rhetoric and the Reality', Queensland Development Symposium, Courier Mail and Economic Society (Qld), 20/6/86);
• failure to invest in new technology and outdated management practices were seen as key causes of low productivity and lack of competitiveness of Queensland industry (Lander D., 'Criticism of Queensland Industry Chiefs for Low Productivity', Sunday Mail, 22/3/87);
• There has been little reinvestment in Queensland industries since the late 1980s. A relatively slow recovery in commercial lending and business investment in Queensland compared with the national recovery was highlighted by the Queensland Confederation of Industry (Carr M., 'QCI alarmed over business trends', Business Queensland, 6/9/93, p28). Queensland had depended on Japanese investment which had fallen by over $3bn pa (Smith A, 'Qld foreign investment down 60%', Courier Mail 8/5/93), and seems unlikely to recover soon given the unresolved losses since 1990 by Japanese institutions (Hartcher P., 'The Rising Sun sinks slowly in a $14,000 bn Sea of Red Ink', Financial Review, 3/2/94). Large scale sale of property assets is now more likely than new investment (Barrymore K., 'Japanese Quit by the Billion', Financial Review, 17/2/94);
• despite Queensland's rapid economic growth (4.9%pa twice as fast as Australia) pressure is emerging on the Government budget. Furthermore major investments are only occurring through Government granting of Casino licences (Massey M., 'State Surges Ahead', Financial Review, 31/8/93);
• tourism has become Queensland's most rapidly growing industry (Hele M. 'Visitors Flock in Record Numbers', Courier Mail, 4/11/93) and could become the largest industry by 2000 ('Cabinet Approvals Speed Tourism Package', Queensland Insight, Bailey Davis McPhee, 2/12/93). However, tourism appears to be a low productivity industry. For example: (a) Many employees receive relatively low wages even though a handful of entrepreneurs become rich (Miskinski J., 'The State We're In', Sunday Mail, 3/3/85). Furthermore those concerned with the plight of the unemployed stress job creation in the mainstream of the economy rather than in the 'marginal and less secure' tourist sector. (Queensland Council of Social Services, Begging Behind Closed Doors, 1990). (b) Nett payments to government by the industry would be low, because one of the major benefits of such investment lies in the tax advantaged treatment of property investment. (c) Return on investment is weak. 'In general fund managers do not believe that the tourism industry will deliver and are sceptical of its forecasts. So while the growth prospects are high once again, fund managers say the industry's optimism is never reflected in the investment returns' (Fry E., 'The Need for Big Investment' Courier Mail, 7/11/91). (d) Devaluation (which reflects a reduction in the real affluence of the community) is seen as a prime means to boost the industry (Johnstone C. 'Drop in dollar to bring new wave of tourists' Courier Mail 15/1/91). There is recognition (in the USA) that the growth of low productivity sectors eventually translates into a reduction of overall living standards (eg Hallcock M., 'Unions and US Labour Policy: Responding to the Low Wage Strategy', Economic and Industrial Democracy, Aug 1993);
• real income declined by national standards over the 3 years to 1992, and more were living in poverty (Thornhill A. 'The Rich kept rolling, the poor got squeezed', Courier Mail, 14/10/92);
• Queensland's exports are high in per capita terms, but so are the borrowing which established the export operations. Queensland's contribution to Australia's structural balance of payments problem has never been calculated, but it would not be surprising if this contribution was high in per capita terms;

SE Queensland is the Weaker Half of the Queensland Economy:

• RPAG's Industry Location and Tourism Position Paper showed that Queensland's economy is based on resource related commodity exports while SE Queensland's economy (half of the state output) is dominated by manufacturing and service industries oriented to the export industries or the regional population, interspersed with a few producers of goods and services for international niche markets. However, cities prosper when they compete with cities at similar stage in development, but not when they act as transport nodes for their region's resources, or a service / political centres. Such competition triggers forces which create: new markets; new types of jobs; technology; industries; and financial capabilities (Jacobs J., Cities and the Wealth of Nations, Viking, 1984);
• SE Queensland's image is that of branch office location and holiday destination (Industry Location and Tourism: Position paper). A similar conclusion was drawn in a study for the Brisbane Office of Economic Development (Brisbane 2000 Survey, Deborah Wilson Consulting, 1989);
• Brisbane has had real difficulties in attracting corporate headquarters functions despite providing low taxes, low government debt and stability (Dowling J., 'Goss Means Business' Financial Review, 18/2/94). Even reducing Queensland's reputation in southern states for an 'unlevel playing field' which favours government corporations (eg by privatising Suncorp) might not make a significant difference. Most firms can not shift far because of their dependence on linkages to other firms or to markets, and there is considerable doubt about the strategic worth of many which can relocate, and particularly about those who would find low costs a compelling reason for relocating;
• technology parks are periodically proposed to make SE Queensland into a 'Silicon Valley' (eg Layton P. 'Technology Park proposal to rival US Silicon Valley', Courier Mail, 29/10/91). This confuses cause and effect, and indicates an absence of understanding of the requirements for technology based industry. Technology parks succeed where there is a well developed technological capability and innovative culture. They do not create those characteristics (Queensland. Premier's Department, The Role of Research / Technology Parks in Queensland's Technological Development, 1984).