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:

• the debate about the international brain drain should not be seen as a distraction, but as a source of ideas as suggested above;
• Queensland's best prospects for developing high level economic functions could perhaps involve:
  • endogenous (rather than exogenous) growth - ie strengthening existing economic capabilities rather than trying to 'recruit' external firms (ie Buying Industry is not a smart strategy - both because its high cost for a few 'successes' defeats its purpose, and because it does not induce the systemic changes required for a multiplier effect);
  • ensuring widespread understanding in the informed community of Queensland's potential economic functions within the changing global environment;
  • creation of a commercially-relevant business environment to strongly support small and medium enterprises (SMEs), and development of clusters of functions related to both agricultural and mineral production and use - because these (SMREs in particular) are what dominate Queensland's existing economy.  The corporate HQs that will put Queensland on the map will be the most successful of the thousands of globally oriented SMEs which grow (and resist takeover) in such an environment.  Methods whereby this might be achieved are suggested in Developing a Regional Industry Cluster - A Generic Approach, which also outlines a theory of how accelerating 'learning' within economic systems can create transient competitive advantages which can raise the productivity of affected enterprises. One type of institution through which this might be orchestrated is suggested in working notes on an Enterprise Institute;
  • significantly improved 'Asia literacy' because geographic proximity without an effective ability to do business is of limited benefit (see Asia' Literacy and Understanding the Cultural Revolution);
  • parallel attention to community, environmental and political issues at both local and regional (ie SE Asian and Pacific) levels - eg see South Lands Connections Project proposal
• success in developing higher level economic functions in Queensland will have a major impact on wages and salary levels and on business profitability, and consequently on real estate values. The potential gains made by holders of strategic property assets suggests one way in which programs to develop such functions might be financed.

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).

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