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An independent study of Enterprise Zones (commissioned by The Regional and
Rural Issues Group at Institute of Chartered Accountants of Australia and
Enterprise Zones working group at Local Government and Shires Association of
NSW) proposed the establishment of a taskforce to integrate incentives to arrest
economic decline in the bush. This was also supported by the National Farmers
Association. Rather than moving people to the jobs, one should move the jobs to
the people. The study was undertaken by Ian Manning of National Institute for
Economic and Industry research. Enterprise Zones would emphasize investment to
create long term regional competitiveness. Enterprise zones establish tax and
commercially friendly environment for 10-15 years and provide some of the
commercial needs for higher risk investments (Sheehan B. and Aplthorpe G
'Government has failed the bush', Financial Review, 28/5/01)
The idea of enterprise zones is being advanced by the Local Government and
Shires Association of NSW and the Institute of Chartered Accountants. the idea
is that it is better to provide incentives to firms that create regional jobs
than to provide funding for reports on opportunities that no one may ever take
up (Woods P and Montgomery M. 'Enterprise Zones - a way to develop regions', Financial
Review, 1/11/01)
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CPDS comment
There can be problems with 'artificial / special' arrangements and incentives
such as would be created under an Enterprise Zones arrangement in that:
- incentives may attract investments which are of limited productivity (and
which are not viable without those incentives) which do not contribute to
the real long term competitiveness of the region. Australia
as a whole long sought to use 'incentives' (ie tariffs) to attract industry
location, and discovered that this created an industry structure which
lacked the motivation and capability to be internationally competitive - but
which was then dependant on those incentives being continued - and
politically influential;
- experience elsewhere also suggests
that investors attracted by lowering
their costs may tend to move on when they get a better offer;
- incentives may attract artificial / 'dodgy' schemes which cast suspicion
on viable projects. For example:
- 10 companies want to raise $430m for investment in rural centres. But
this is very hard because the PE ratio for these firms is only 5. They
are offering tax effective investments which are perceived as only
marginally legal. This leads to even commercially viable projects being
assessed harshly (Jacobs M.,
'Rural investments deserve a break', Financial Review, 14/6/01)
- it is not at all clear how one would 'provide for the commercial needs of
higher risk investors' without first genuinely developing the region's
economy (as artificial 'help' can only ever allow temporary 'success')
- special arrangements may not
actually be necessary - because
viable economic development may be feasible (as
below)
The prospects of rural and regional Australia should be dramatically improved
by a change in community assumptions about economic strategy to give priority to
'productivity' as the path to increased investment. The first change required is
from the traditional emphasis on comparative advantages (ie the natural
advantages of a region such as natural resources) onto building competitive
advantages (ie the knowledge and skills of people, and the effectiveness of organizations).
The second change required is to end the industrial era tactic of seeking to
attract outside investment as the path to development, and begin emphasis on
developing the productivity of enterprises already located in the region (See Defects
in Economic Tactics, Strategy and Outcomes).
Productivity is high where there is a large
difference between the market value of what is produced, and the costs
incurred in producing it. High productivity supports high profitability, high
wages and salaries and high net payments to government. In a competitive
environment, those who rely on the comparative advantages available generally
in a region, often find prices bid down to near their costs. Value added can
be large through having competitive advantages, based on the capabilities
(such as scale, technological knowledge, marketing capabilities, quality,
service capabilities or increased efficiency) of firms in the region. These
allow additional 'value' to be captured, but often only temporally, before
competitors catch up. High ongoing productivity requires the ability to
constantly create competitive advantages.
A Scenario - Major Inland Cities: In 2010
six inland centres in Queensland (Charleville, Roma, Emerald, Longreach,
Charters Towers and Mt Isa) are growing rapidly, a prospect which has been
noted by national companies and property developers and is beginning to be
reflected in their investment plans. In each centre, the community is
developing competitive advantages through their enterprises' knowledge, skills
and effective international connections, which have dramatically increased the
productivity of industries in the region. Investment in those industries has
increased, and specialised suppliers to those industries are moving in.
Individuals and small firms whose business is conducted by telecommunication,
as well as retirees, are locating in these centres because of lifestyle
advantages, the improving facilities in the area, and the prospect of capital
gains on property. Local authorities are concerned about the need for proper
planning for rapid growth, and about funding the necessary infrastructure.
Delegations are sent to state and federal governments to ensure they are made
aware of what has happened, and that the needs of these centres are reflected
in government budgets. Several other inland communities are adopting ambitious
goals for their future.
Viable means probably exist to develop a regional industry cluster without
governments providing
long-term artificial / special support - see Developing
a Regional Industry Cluster. Implementation through encouraging
enterprise is a critical part of this proposal. Simply preparing reports on
opportunities is likely to be a waste of time.
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