A. SIQG's View of the Strategic Environment

The contextual picture for planning infrastructure which SIQG assumes is not a realistic assessment of the situation for in relation to issues such as: the substantial changes required to achieve environmental and ecological sustainability; potential instability of global financial markets; probable peaking of global oil demand / supply in the next few years. Also the 'spin' placed on the prospects of Queensland industries appear unlikely to be correct.

Specifically in SIQG:

• Queensland's past overall growth is mentioned (p11) - but not the poor quality of that growth (ie mainly due to increased inputs, rather than through productivity). This implies that continuance of past economic targets (and past infrastructure goals) have not been satisfactory;
• oil prices are currently high - a situation which is causing considerable difficulties for some sectors - and is indicative what must become a permanent feature when global oil production peaks (as it must in the next few years as noted in comments on June draft). Yet this situation (which must have a major impact on Queensland's, and everyone else's, energy systems) was not even mentioned in the Chapter on energy infrastructure;
• SIQG mentions environmental sustainability - yet the substantial environmental challenges which must impact on the state's economy (eg as suggested in comments on June draft) were not mentioned. Also sustainability is seen to merely require incorporating environmental considerations in (economic) decisions. Unfortunately it requires much more than this - because ecological systems (a) are too complex to analyse (b) have their own internal dynamics whose viability is not captured by treating an environmental asset as an element in an economic calculation (see for example 'Adapting the economic system to fit the environment', Civil Engineers Australia, Sept 2000)

B. Government Leadership and Strategic Investing

A core premise of SIQG involves government leadership in the economic arena. Unfortunately the now-essential shift from mass-production / capital- intensive production to knowledge intensive production as the basis for high productivity makes it much more difficult for any politically accountable entities in Australia to take the lead in economic affairs.

Why: Leading edge ideas and practices can never be politically acceptable until they are accepted by 'everyman', by which stage potential competitive advantage will have fully exploited by others and the ideas and practices will have ceased to be particularly valuable. This is illustrated by the political acceptability now belated accorded to innovation and technological development (eg by SIQG) - where this requirement was quite obvious to any serious analyst 15 years ago.

Thus, while the poor performance of many regional economies is partly a consequence of the circumstances nominated in SIQG (p14-15), it is also a consequence of the use of industrial era economic management tactics during the 1990s because politicisation of the Public Service eroded the skill base required for government to take to a more serious role in building the competitiveness of the economy. 

Leadership is certainly required in development of economic systems - but this must come from entities which are not constrained by political pressures.

There is little doubt that some infrastructure investments can have a catalytic impact on regional development (and may thus justify general government budgetary support rather than reliance on currently identifiable demand). However:

• it can never be infrastructure alone which has this impact (eg it was not only Fairbairn Dam which allowed Emerald to grow - p18);
• the fact that infrastructure can have such an effect goes no way to providing guidelines for assessing which investments will be likely to have such an impact - even though SIQG does note that great care is required in making such judgements;
• government can't know what the sustainable economic opportunities which 'ought' to be supported with strategic infrastructure are (p26). The assumption that 'picking winners' is possible runs counter to obstacles implicit in the inability of analysts to assemble the information required to make such judgements, and the interest group pressures to which our political system is subjected;
• a major catalytic impact on the economy of (infrastructure) spending can be through stimulating technological advances through demanding specifications - an issue which is widely canvassed in the 'new growth theory' literature (and practised elsewhere) yet not mentioned in SIQG;

Queensland Government has been investing heavily in 'strategic' infrastructure - apparently funding this from the accounts of Government Owned Corporations (whose deficits have increased significantly over two years). This has involved (for example) commitments for Smart State initiatives (eg biotechnology, IT strategies) - and may involve large subsidies for a gas pipeline in future. Unfortunately, as noted below and in a separate analysis, the former is likely to result in arrangements which can not be economically or commercially effective.

C. Expect few Outcomes

The method used for producing SIFQ involves strategic 'planning' - a technique which has been proven not to work. Strategic 'planning' involves centralised efforts to identify strategic influences, and define how an organisation (in this case a whole state) should respond. Such techniques were widely used by major firms in the 1970s - when rapid change was first recognised to require a means for responding. However strategic 'planning' lost credibility in corporate management after about 1980, and was largely replaced by strategic 'management' - a technique which involves engaging operatives in evaluating the implications of strategic issues (see Craig J. Strategy Development in Business and Government, Office of Coordinator General, March 1997, unpublished). Four general economic strategies in Queensland since 1988 have used strategic 'planning' methods and had limited useful impact as they also did not really engage either the knowledge or commitment of those 'on the coal face'. SIQG can be expected to have a similar outcome.

SIQG notes correctly that the success of the SIP depends on the commitment of numerous others to the program - but has done nothing to gain that commitment beyond the few individuals and organisations who were consulted.

SIQG also correctly recognises need for integration across different types of infrastructure and within regions. However such integration is needed in reality in vastly more dimensions than can be dealt with in an 'planning' process. The only way to achieve viable coordination is through the initiative of those responsible for particular types of infrastructure.

The most probable outcome of SIQG is that nothing much happens at all because the real requirements for infrastructure development are too complex to be undertaken through such a planning process and entities actually responsible for infrastructure provision will tend to ignore SIQG. However entanglement in SIQG could tend to impede others' initiative (eg noting procedures for producing, evaluating and prioritising regional initiatives on p33-36).

SIQG will tend to be ignored because (a) it does not cover the requirements of entities directly involved (b) the latter were not actually committed by the process through which SIQG was produced and (c) some will have their own system-wide planning processes operating in parallel (p36).

It can also be noted that regional definitions used for SIQG were said to be 'logical' because they were DSD's regions (with minor adjustments) which provides for consistency with other DSD plans and enables DSD to implement the plan (p143). Prior experience suggests that such regions will correspond with those used by few (if any) other organisations - and are thus not likely to be appropriate to the needs of organisations responsible (as DSD is not) for any specific type of infrastructure);

Furthermore the SIP consists at this stage of a large wish list of possible projects - for which there is no justification, or simple process whereby they might be brought to fruition

However if a serious attempt is made to force the pace through SIQG then expected outcomes would be: inappropriate (trendy) infrastructure; commercial losses at taxpayer expense by infrastructure providers; and a serious obstacle to the creation of viable innovation and technology infrastructure (ie one which is outside government).

An Aside: A major cause of weaknesses in the SIQG is presumably the practice of making Public Service appointments on the basis of political connections - a practice which reportedly now has bipartisan political support (Franklin M., 'Only four survive Beattie's reshuffle', Courier Mail, 17/4/99). The result is that professional concern for what is likely to work has tended to be replaced by a political astuteness which merely tells the political system what it wants to hear. And if it wants to hear that a Strategic Infrastructure Plan will transform the state's economy - then that is what it will be told.

D. Regional implications

Regional infrastructure proposals were said to be based on an analysis involving 'statistical analysis, examination of existing economic profiles and regional consultation' (p144).

None of these sources are adequate - because statistical data merely indicates what happened - not why it happened, and like existing economic profiles this tells very little about future opportunities in a period of rapid change. Regional consultation also is very constrained in the absence of infrastructure which would enable regional community leaders to know much about market or technological opportunities available (noting the small business, branch office character of much of Queensland's economy, and the virtual absence of commercially aware institutions which seek to identify the significance of current trends).

Furthermore the assumptions about what is required to change the prospects of regions from those dictated by natural assets and existing population have ignored the two most important factors - ie the impact of improved knowledge of market or technological opportunities; and the influence of business and civic leaders using that knowledge. Intervention which will make a decisive difference does not have to be (and seldom will be) a matter of government policy.

Likewise entrepreneurship and leadership are critically important institutions - which should have been included in the diagram (p10) - as should institutions to provide them with more relevant information than is currently available in a small business / branch office / foreign investor reliant community.

E. Soft Infrastructure

SIQG makes a formal distinction for the first time in Queensland between 'hard' and 'soft' infrastructure (p9). However the real significance of this has apparently not been understood.

The key characteristic of 'soft' infrastructure is qualitative (eg how an organisation works) rather than quantitative - whether an organisation or a facility exists (or how many of them exist). Those qualitative aspects can not be dealt with by SIQG's planning process.

Example: The problem can be illustrated in the acknowledged 'soft' area of innovation and technology infrastructure (Ch 10). Mention is made of universities - through making a list of them. However there appear to be major problems affecting such institutions (eg uncertainties about basic philosophies, overhead costs to increase political accountability - which is destructive of the main function of universities, and shortage of financial resources). These difficulties are not indicated by making a list of universities - and such a listing makes no contribution to resolving those defects. Similarly CRCs are listed and endorsed as 'things' whereas there is every reason to suspect that the way in which these entities operate needs substantial reform before they are likely to be effective (ie to ensure real responsiveness to market requirement rather than the technical interests of service suppliers)

Furthermore there is virtually no such thing as primarily 'hard' infrastructure any more. As noted below in a competitive  environment even traditionally 'hard' infrastructure (eg transport facilities) need to be conceived mainly as an enterprise, not as a 'thing' (especially where users-pay). Despite this, in discussing infrastructure provision (p11), SIQG only mentions the 'hard' aspects of infrastructure (ie the construction of 'things');

F. Infrastructure for Innovation and technological development

SIQG endorses investment in innovation and technology infrastructure on the basis of the (unproven) expectation that the market will under-invest in such infrastructure (p20).

Though this expectation is probably correct (a) government investment in such areas may simply perpetuate (rather than correcting) market failures by providing inappropriate services and (b) alternatives are available to stimulate market-based infrastructure.

Reasons to suspect that the Smart State strategy might typically result in the creation of 'toy' facilities for the political system to play with, rather than those which are commercially and economically beneficial, were outlined in my comments on the June draft.. Innovation (and much technology) infrastructure needs to be outside government if it is to be effective

Furthermore in SIQG

• bio-industry strategy focuses on inputs - not on the ability of those inputs to produce results. Australia's (and others) experiences with large increases in funding for functions such as education in the 1970s showed that this does not ensure productive use of those inputs.
• biotechnology and nano-technologies are said to be key emerging technologies - yet these are not un-controversial (reference on this available by not found)

G. Financial Implications

SIQG states the Queensland Government intends to pursue economic gains rather than be concerned purely for commercial returns to infrastructure providers. However the means to achieve this may be lacking noting that:

• state administrations lack direct taxation returns from the increased productivity of a state economy - in the event that the latter were to be achieved;
• the adoption of competitive service delivery under National Competition Policy now requires that infrastructure planning give major emphasis to commercial considerations or else large financial losses are likely - as outlined in my notes on the June draft.
• Queensland's institutional arrangements for GOCs appear likely to result in financial losses as competition becomes effective (see again nots on June draft); and
• Queensland's budgetary situation appears to be strained already.

Despite this SIQG does not deal seriously with the actual financial implications of the SIP. Clearly what infrastructure services are actually provided depends on the costs, and on the resources available. Also an outline of the way in which proposals are to be evaluated must be part of any infrastructure planning. In practice the financial impact on the state budget of infrastructure proposals which might emerge could well be seriously damaging, because (as noted below) the process used for the draft State Infrastructure Plan does not ensure that infrastructure would accurately reflect external environmental pressures or the demands of customers for infrastructure services.

H. Productivity

Improving the productivity is a critical requirement to deal with:

• the long term steady decline in relative per capital incomes due to the types of functions which have been encouraged to grow in Queensland ;
• the pressure on the $A which reflects (not only an (unsustainable) boom in the $US but also) a lack of willingness by investors to provide capital to Australia - probably because of (a) the loss of desire to investment in previously-important resource projects which have proven unprofitable, and (b) the constrained investment opportunities in the majority of Australian regions which failed to move beyond industrial era tactics in the 1990s (see attachment to Email dated 14/9/00).

Speculation: It is the author's expectation that (other things remaining unchanged) pressure on Australia could continue to mount until a more serious approach to development of competitiveness is taken (though reversal in US stock market could reduce its attractiveness for investors). This would require conceding that there is a problem and that the 'reforms' during the 1990s were not adequate.

SIQG is said to be targeted at economic infrastructure - ie presumably that which will improve overall performance of the economy. However the method used for preparing SIQG ensures that this can not be achieved. SIQG was prepared by consulting infrastructure suppliers (p v), not their customers - and thus indicates what the former would like to do if (public) resources were available, not what the latter want to pay for (which is what is critical if value-added / productivity is to be increased). Thus the infrastructure options which can be identified will tend to be those which reduce, rather than increase, the economy's productivity.

It is, of course, impossible through any centralised planning process to consult the customers of each infrastructure area - which is a major reason that centralised planning is inappropriate

The process used for preparing SIQG would have been quite appropriate for social infrastructure - but this was the area which was specifically excluded from consideration.

October 2000