Getting our Heads Together (2002)

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Issues and options that Queensland could consider in overcoming its branch office status have been suggested by the Executive Director of the Brisbane Institute. 

'Let's get our heads together'
(Spearitt P. Courier Mail,  29/7/02)

Queensland is still seen as the branch-office state - a situation that is exacerbated as local firms are swallowed up by national firms. Despite this SE Queensland is growing faster than other urban regions. Smart State rhetoric demands economic and employment wins. The concentration of corporations and also business- professional expertise in the south has implications for government's R&D strategy. The debate about a brain drain to the UK / US has distracted attention from changes in Australia - with high level finance jobs (as well as computing, telecommunications, national media, law and global accounting) concentrated in Sydney. Apart from the universities, Brisbane's professional talent (beyond serving the local market) is thin - as in Adelaide, a city which knows that it is in trouble. Queensland has had some wins in the services / transport sector (with Boeing, Flight Centre and Virgin HQs). The universities offer potential for national / international investment. Much of Queensland's economic strength comes from decades of government intervention in transport, electricity and infrastructure. State revenues are unlikely to keep up with infrastructure needs, which is the reason for the current inquiry into private financing options. Queensland has a large rail system due to private funding of freight lines. An indication of mining's importance to Queensland is the high incomes earned in small mining centers. Wealthier Brisbane suburbs depend more on generating financial wealth, rather than real economic production. How do coastal and retirement resorts become economic generators of real depth? Mining, agriculture, tourism and education are good for export income, but are subject to extreme volatility. The state government (which promotes both the Sunshine and the Smart State) wants to build on the state's attributes - and international exposure should improve this. Queensland needs to continue to commercialize environmental and research capacity (eg sustainable agriculture, solar power, coastal protection and biotechnology). Federal venture capital is vital for this, so Queensland needs to make a good showing in national research priority bids. Queensland's private sector doesn't offer salaries to attract people from finance, market research, legal and telecommunication industries in Sydney and Melbourne. Queensland always plays the lifestyle card - but to get more strength and talent needs some major players, more research and investment capacity and for local firms to open southern branches

CPDS Comments

The above article represents a very useful breakthrough in three respects. The question it asks (ie how Queensland is to develop high level economic functions) is of key importance. Its title ('Getting our heads together') implies the need for collaboration in finding a solution. And it does not suggest that the outcome of any such collaboration should primarily involve lobbying governments.

There is a great deal of existing information on (or relevant to) the challenge which has been identified. For example:

Australia in the Global Economy - includes a digest of corresponding 'branch office' concerns at the national level, and numerous suggestions that have been made about how the situation might be addressed (most of which would have state parallels). CPDS comments about this are also relevant to Queensland.

Issues addressed include: positive indicators; undervaluing of companies by financial institutions permitting cheap takeovers; poor environment for investment; regulations constraining mergers and scale needed for global competitiveness; weak institutions resulting in poor policies; bad corporate strategies; taxation; exchange rates; the benefits of foreign investment; lack of problems with branch-office status; lack of viable strategies for major firms if confined to Australia; lack of equity market depth which raises costs of capital; cheap takeover based on weak exchange rates; and rapid loss of strategic decision-making capabilities;

Suggestions relate to: population growth; closer Asian engagement; industry policy; continued economic reform; emphasis on SMEs or on branch offices; being the 'back-office' for Asia; rapid business formation; more market oriented firms; innovation; emphasis on services where proximity is irrelevant; cutting red tape; reforming tax / financial systems.

CPDS Comments relate to: literature on the organization of global economic systems; the implications of global financial systems for business location in Australia; the need for real economic capabilities; the risk of 'populist' policy ideas in an unsophisticated branch office economy; enterprising leadership of economic development; the problems with 'buying industry'; and various available options.

Brain Drain - which includes both negative and positive indicators;

Business Initiative - the challenges facing Queensland firms;

Section 5 of SEQ 2001: A Plan for an Under-developed Economy - noting specifically links to SE Queensland has an Underdeveloped Economy and in Notes on SEQ 2001 methods 

Suggestions in relation to the specific points made in 'Getting our heads together' include:

Prospects of major gains are very real as Queensland's difficulties in generating high level economic functions have been partially due to the limitations of traditional economic strategies (see Queensland's Economic Strategies).

The potential for major gains can be further illustrated by a July 2002 innovation conference at the University of Sydney (see Boyd T. 'Smartening up our ideas',  Financial Review, 30/7/02). Innovation (the ability to successfully implement emerging ideas) is a key economic capability because it provides scope to profit from (rather than be the victim) of change. However the conference:

The greatest scope for advancing Australia's economic performance lies in overcoming the dependency culture reflected in the latter assumption by Australia's science and technology establishment. The latter argue that only government can create an effective innovation system, yet the most critical element in that system (a capability to commercialize ideas) is one that government's like those in Australia can't create (see comments on the above article).

A technique whereby real commercialization capabilities might be 'bootstrapped' was suggested in 1998 proposals for an Engineering Enterprise Development Centre.

Once Queensland's community has business and community leaders who can cope with such challenges (which is quite feasible), its traditional 'branch office' status will be history.

A significant current constraint is that the state government's ability to intervene successfully in infrastructure (which has been important in the past) is diminished because of both institutional and financial difficulties (see Defects in Infrastructure Planning and Delivery in Queensland and About Queensland's 2002 Budget). Furthermore constraints apply to private financing options as currently envisaged (see About Public Private Partnerships)

July 2002