[These comments were produced on a June 2000 draft of SIQG and to a varying extent (which the author has not reconsidered in detail) were taken into account in the September 2000 version].

Why infrastructure planning is now hard

A major un-stated reason for the Strategic Infrastructure Plan is presumably that Queensland's framework for planning 'hard' infrastructure has been ineffective since the early 1990s. That system had involved planning and provision by departments or statutory authorities. It ceased to be effective as an unintended consequence of poorly evaluated prior policies when

• many of those with knowledge and experience of infrastructure requirements were displaced through a naive process of Public Service 'reform' (see Towards Good Government in Queensland); and
• competitive service provision was introduced without consideration of how infrastructure services could then be planned. Competition in service provision (combined with increased 'user pays' which reduced government's role as the purchaser of / decision-maker about infrastructure) has led to competing interests simultaneously trying to plan - which makes particular problems for the elements of infrastructure that have to be integrated (eg into networks) and for that hard infrastructure that needs to be integrated with regional land use and environmental considerations (which requires that someone be able to negotiate this).

An attempt was made to plan infrastructure through regional planning studies (eg SEQ 2001) which process was then embodied in the Integrated Planning Act. However this is ineffectual for infrastructure as it is not focussed on (and thus can not take account of) the considerations which affect infrastructure service providers. The result of the loss of relevant knowledge and skills and of effective planning processes is typified by: (a) the planning debacle, management difficulties and cost overruns associated with the South Coast Freeway in SE Queensland; and (b) the under-provision of power stations in the early 1990s (and resulting brownouts) [with the expected large overcapacity for the next few years reflecting the competitive excesses which can emerge in newly deregulated markets].

Another constraint on 'planning' is that many infrastructure services (even those that are provided by government) are now provided by enterprises which have to produce commercial benefits by selling the service to users (perhaps with some input of public subsidies through Community Service Obligations (CSOs)). Thus:

• central planning is more difficult as many infrastructure enterprises must provide services which respond to demands, rather than to central plans. If they do not respond mainly to demand, then in a competitive environment they will not be financially viable, and / or government's CSO costs will blow out;
• 'planning' can no more pick commercial winners for user-pays infrastructure than central 'planning' can do for any other economic activity - because it is impossible for a planner to obtain all the information needed for such a decision (except in those cases where government is the purchaser of the infrastructure service on behalf the community). Furthermore, the environmental uncertainties which face infrastructure service providers (which as noted below the draft paper appears to overlook) mean that all that can really be planned is how service providers should be equipped to respond to the demands which are placed upon them;
• it is impossible to reach viable conclusions through 'consensus' amongst infrastructure providers - which appears to be the way in which the draft Strategic Directions proposals were formed. The problem with consensus is that it will reflect what infrastructure providers would like to do - but not what their customers (who determine the commercial viability of user-pays infrastructure services - and the level of CSOs which have to be paid if services which are not commercially viable) are willing to pay for; and
• as government is potentially the purchaser of, or required to pay CSOs for, some infrastructure services, the process must clearly avoid providing public or private service providers with insider influence over government decisions which could financially benefit themselves. However there is no mention of this potential conflict of interest.   The massive difficulties in the incestuous relationships within the (so-called) military-industrial complex in the USA, and in the 'construction-state' in Japan show the nature of the risks.
• many of the government owned enterprises which are involved in providing infrastructure services in Queensland must be of dubious commercial viability - because of Queensland's 'corporatisation' model. Such GOEs are quasi 'nationalised industries' (ie businesses subject to both political demands and competitive pressures). Worldwide experience is that such entities tend to inflict financial losses on taxpayers - a phenomenon which has given rise to widespread privatisation of such entities. A reported recent government decision, that some GOEs can afford to take on more debt, is purely designed to meet state budgetary needs, and indicates the type of constraints on real commercial viability which such entities must suffer (see McCarthy J., 'Port's hollow log targeted', Courier Mail, 30/6/00).

Macro Uncertainties affecting the Environment for Infrastructure Services Generally

The environment for planning of Queensland's infrastructure is anything but as simple as the Strategic Directions paper assumes. For example:

• there are unresolved questions about environmental and ecological sustainability, which can have large implications for the types of infrastructure which will be required, such as:
  • if anyone takes the Kyoto agreement on reducing greenhouse emissions seriously, Australia's CO2 emissions are allowed to increase by only 8% between 1990 and 2010 - but emissions were already up 19% by 1998 (Taylor L. ''Cabinet burning the midnight oil over gas'', Financial Review, 26/5/00). Achieving the target (which many of Australia's competitors in its traditional industries are not required to do because of their less-developed economic status) would require an unprecedented industrial redirection as current indicators are that Australia's greenhouse emissions have not yet been decoupled from the rate of overall economic growth (Cummins K. 'Emissions tracking economic growth', Financial Review, 14/7/00).
  • globally we seem to be heading towards a mass extinction (with 50% of species lost by 2050 according to Richard Dawkins, The Sixth Extinction). Previously in geological history, mass extinction events have been followed by rapid evolution (as environmental complexity ceases acting as an obstacle to the emergence of new species). The Pleistocene environment, in which humanity is the top predator, could ultimately be at risk. As the significance of reduced bio-diversity starts to be realised over the next few years, it is likely that moderating ecological impacts will be seen as the key 'success' criteria for nations. Again this will require a revolution in economic practices, and infrastructure requirements;
• global financial markets seem unlikely to be stable - a fact which has significant implications for infrastructure service providers. For example:
  • the US has been creating an asset bubble since early 1980s - which tried to burst in 1987, but failed because the US Reserve Bank discovered how to prevent crashes from affecting the real economy (ie by boosting liquidly). The IMF (the world's Reserve Bank) reached similar conclusions in dealing with the international financial crises which have become very frequent in recent years. The liquidity they created to prevent crashes then fed into demand for equities, while investors 'learned' that there was no longer any equity risk and accepted huge price-earnings ratios. Increased asset values then boosted real demand. The resulting booming US growth was not derailed by inflation (to everyone's surprise) mainly because the Asian crisis helped constrain inflation through providing plentiful cheap imports. The US Fed has now formally identified how its efforts to rescue investors have led to an asset bubble and warned that it will not do so in the next financial crisis (Gray J. 'Plan ahead for next crisis, says Fed boss', Financial Review, 14/7/00);
  • issues underpinning the Asian financial crisis have not been resolved. A key factor in that crisis was apparently East Asia's mercantilist economic goals (ie goals which seek to build the national power of particular ethnic / cultural groups, rather than to benefit consumers). For cultural reasons emphasis is placed on the 'real' economy, and 'abstract' (eg financial) outcomes are seen as less important eg it is usual in East Asia to value market share (power) - rather than profitability. [This is similar to the preference which often exists for the rule of man, rather than the rule of (abstract) law]. The 1997 financial crisis probably reflected the incompatibility between this mercantilist economic goal and the Western / global financial system's expectation of financial returns. The IMF's inability to manage the situation (and the damage it caused to many countries - Indonesia in particular) resulted perhaps from the fact that the cause of the crisis was outside the IMF's prior experience or understanding. There is now increased support for a Japanese run Asian monetary fund to duplicate the role of the US dominated IMF (Hartcher P. ''How the West lost its sway in the East'', Financial Review, 21/6/00; Bergsten F. 'Tigers throw off shackles', Australian 17/7/00). There is no guarantee that a financial system predicated on ignoring financial losses (which has been the strategy that the principals in the potential Asian economic system, Japan and China, have been pursuing) would be sustainable. However the unity of such a coalition of historical foes would depend entirely on an anti-Western cultural and ethnic bias - and this would have considerable implications for Australia.
• global oil production must peak in the next few years (eg the International Energy Agency now predicts a large contribution to liquid fuels production from unconventional sources by 2020). The result must be, as occurred when US oil production peaked in 1973, much more costly fuels and inflation, and
• Australia is surrounded by an arc of countries many of which currently exhibit extreme political instability - resulting in a downgrading of Australia's security expectations, and a probable need to shift resources both to reduce their instability and to guard against its consequences.

Furthermore the optimistic 'spin' which is placed on Queensland's situation is unrealistic. For example:

• Strategic Directions suggested that Queensland has high quality human resources, which is not completely true. The state has: a very high level of reliance on external investors to take economic initiative; a domestic economy dominated by branch offices and small business; and a virtual complete absence of capable research institutions to identify the significance of current economic developments. Thus critical high level strategic knowledge and skills are generally absent, as is the advice to governments which they might provide. A similar problem within the state government was first identified in 1998 in an interdepartmental committee report, Initiating the preparing for the Future Project - but this view was buried on the change of government. Also Queensland traditionally has suffered a brain drain, due to the absence of demand for higher level skills in the state. Furthermore Queenslanders' ability to do business in East Asia is highly restricted (being mainly limited to the sale of commodities) due to general inability to understand the cultural traditions on which business networks in the region traditionally operate;
• Strategic Directions assumed that traditionally strong industries have a bright future. This may or may not be the case, but at the very least many of those activities will need to be re-invented, requiring infrastructure which can not simply be projected from past demands. For example: (a) major resource investments have been a significant factor in driving Queensland's growth during the 1990s (b) resource companies have however produced miserable financial returns for two decades - a situation which their shareholders will no longer tolerate and (c) the probable reason for poor returns is that industrial-era tactics have been pursued (ie involving building competitive advantages on the basis of capital intensive mass production - a tactic which manufacturing industries found in the 1970s to be unsustainable in competition with less developed countries). Thus 'business as usual' is not an option for such potential investors. Similarly simplistic pronouncements about food and minerals processing and the need for 'value-adding' are of dubious validity. There are many indicators that Australian food companies have not coped well with competition either in rapidly growing Asian markets or even in Australia. And the 'production focused' (as compared with value creation) attitudes which have dominated mining firms have applied equally in efforts to promote mineral value-adding. In Queensland value-adding to mineral production has been defined as downstream processing (Cooper W., ''Mineral Processing in Queensland'', Queensland Government Mining Journal, Sept - Oct, 1998) whereas processing only adds value if the increased price of the processed commodity greatly exceeds the cost of the processing. This is not assured, and depends entirely on the competitive environment. Unless Queensland's mining / processing industry cluster is managed from a viewpoint which recognises the need for, and nature of, competitive advantage - then firms' prospects will be severely constrained - and infrastructure provided in anticipation of their easy success will be wasted;
• Strategic Directions stated that Queensland has a strong record of growth. However this is a very dubious measure of success, as per capita incomes have been in a century long decline relative to international standards, and Queensland's per capita incomes have remained stubbornly 15% below the national average. Queensland's faster growth reflects increased labour and capital inputs rather than increasing productivity - a factor which has been aided by the effect of constant devaluations to price people into jobs; and running down national assets to finance growth (eg through a high current account deficit and accumulated foreign obligations), . Goals which are different to the rapid growth of traditional low productivity industries seem to be required if Queenslanders are to have a prosperous future;
• Strategic Directions pointed out that the state government is committed to seeing Queensland become an internationally renowned 'smart' state. However there appear to be serious defects in the way in which that long overdue goal is being pursued - as indicated in DSD's Innovation - Queensland's Future. The latter draft plan gives recognition to the economic importance of knowledge and innovation, and thus is of great symbolic value. However the actions proposed in the draft plan appear unlikely to achieve their goal because of technical limitations including:
  • the plan''s strategic ''planning'' method has a history of failing to advance economic capabilities - because of an inability through such ''planning'' to mobilise required information, initiative and commitment. Similar methods have been used in four ineffectual general state economic strategies since 1987.
  • commercially relevant support for innovation gets far less emphasis than public programs, though the latter can seldom be of the required quality or flexibility. In countries with successful innovation systems they are primarily external to government.
  • unless the suggested government / business partnerships are strongly market oriented, they are unlikely to be economically productive. But the private sector is only being consulted about (not leading) this plan;
  • innovation assets would not be grown as an integrated system, but would only exist as fragments. The experience of LDCs'' with the very popular ''missing strategic factor'' development theories in the post World War II period show that such fragments are likely to be wasted. Recent reports suggest similar outcomes are occurring in Queensland, ie that vast numbers of the people being trained in information technology and molecular biology are being recruited offshore ('Brain drain causes strain', Courier Mail, 27/11/99).
  • ''picking winners'' is proposed, which is likely to prove costly and counterproductive (a fact which beginners always blame on predecessors'' stupidity, rather than on the limits to rationality and the effect of politics); and
  • the (implicit) theory on the economic role of innovation may need to be improved.

An analysis of DSD's Innovation proposal is available. Queensland''s innovation plan may achieve political benefits (ie convince community leaders and the media that enough is being done about innovation) whilst merely creating a ''toy'' innovation capability for the political system to play with. Queensland in its 'smart state' mode appears very similar to the unfortunate Cain administration in Victoria in the 1980s - where long overdue economic change was 'pushed' through politically oriented initiative - which made the government popular for a few years but ultimately led to large losses as those activities lacked market logic and were not sustainable without ongoing injection of public resources. Ominously, in Queensland a very large cash injection is now being seen to be needed to sustain biotechnology research activities which have been politically driven (Johnstone C. 'State biotech firms call for cash injection', Courier Mail, 23/6/00);