Transcript Towards a Spatial Keynesian economics

Creating effective employment solutions for regional
Australia
Professor Bill Mitchell
Centre of Full Employment and Equity
University of Newcastle
NSW, Australia
“The
“The Northern
Northern Territory
Territory is
is aa vast
vast wild
wild land,
land, full
full of
of
huge
huge possibilities
possibilities, but, up to now, a colossal failure.”
THE BANJO
Source:http://trove.nla.gov.au/ndp/del/page/826234
The Davos mindset
 Alcatel CEO Ben Verwaayen said:
- the concept of a nation was disappearing and being replaced by
direct relationships between local regions and global markets.
- The problem is that policymakers are still operating as if there
was a national prerogative that policy could service.
 “New regionalism” – is part of the overall neo-liberal
mindset that has blighted regional development theory
and practice.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Outline of talk
 Policy makers get captured by dominant paradigms –
“mindsets”, “ideologies”.
 Regional development theory and policy exemplifies
this.
 We need to re-think the role of the state and the region –
to garner those “huge possibilities”.
 A new policy framework is required if we are to create
effective employment opportunities and inclusive
regions.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
The purpose of regional development
 The goal of economic activity should be to advance the
well-being of all – to maximise public purpose.
 The sustainable goal should be the zero waste of people!
 We don’t want new industries or firms for their own
sake.
 Our goals have to be focused on people and the natural
environment that sustains us.
 The goal of regional development should begin with that
presumption.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Goal of regional development
 This goal requires – at least – that the state to maximise
employment which sustains both our material and nonmaterial needs.
 Once the private sector has made its spending decision
based on its expectations of the future, the government
has to render those private decisions consistent with the
objective of full employment.
 Non-government sector typically desires to save over the
business cycle. What does this imply?
 A macroeconomic imperative!
 Typical and atypical spending behaviour.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Evidence of policy failure
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Despite political rhetoric to the contrary Australia has
never gone close to full employment during the long
growth period since the mid-1970s.
Australia does not produce enough jobs nor hours of
work.
The work opportunities are spatially concentrated –
two-or-more-speed economy!
There is a constant tension between social settlement
and economic settlement.
Regional development strategies have largely failed.
Why?
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
The full employment era
 The Post WW2 settlement was mediated by the full
employment framework.
 Coherent macroeconomic policy supported full
employment.
 A national skills development created dynamic
efficiency – firms had to offer skills and jobs.
 Coherent regional development policies meant there
were jobs and infrastructure where people lived.
 Inclusive redistributive approaches.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Neo-liberal era …
 The neo-liberal era began – around mid-1970s.
 Promotion of the idea that private markets self-regulate and
deliver optimal outcomes – wealth maximisation.
 Features:
- Abandoned government commitment to full employment – fiscal
surpluses.
- Accelerated deregulation of labour market and financial markets.
- Massive unsupervised growth of financial sector.
- Privatisation – loss of training capacity in public sector.
- “Individual” promoted - “collective” eschewed.
- Abandonment of explicit regional strategies – “market would fix”
- Intergenerational myths.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Flawed neo-liberal agendas
 Several “new” ways of thinking emerged to flesh out the
neo-liberal agenda at the regional and community level.
 New regionalism – the “state” is irrelevant – promotion
of the individual – abandoned notion of systemic crisis.
 Social entrepreneurship – built on the “market” model.
 ABCD – further accentuated the individual construction.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Failure of neo-liberal approach
 The current crisis is the direct result of this approach.
 Real wages failed to keep pace with productivity and
national income was redistributed towards profits.
 Consumption driven by credit not real wages growth.
 Private indebtedness became unsustainable - collapse.
 Pursuit of surpluses degraded public infrastructure
especially in regions.
 Spatial inequality rose.
 “Market” failed to drive appropriate net migration and
commuting patterns.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Failure of neo-liberal approach
 High rates of labour underutilisation especially among
15-24 year olds and older workers.
 Poorly structured training framework – waste of funds.
 Welfare system has become a pernicious compliance
mechanism.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Starting point - macroeconomics
 Policy must refocus on full employment, higher rates of
participation and dynamic skills development.
 Even with the major shifts in patterns of trade and
production, the national state remains relevant.
 Regions dance to the tune of the macroeconomy.
 Regional development must be supported by a strong
macroeconomic environment.
 Deregulated markets fail.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Macroeconomic reality
 Australian government issues its own currency and can
never run out of money.
 Unemployment is always a choice of government.
 Government can always maintain full employment by
ensuring its net spending fills private spending gap.
 Budget deficits are NORMAL if private sector saves.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Faux issues ...
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Fiscal consolidation.
National saving.
Intergenerational debate – ageing society.
Primacy of bond markets.
Governments living beyond their means.
The fear of hyperinflation.
Household budget analogy.
Ricardian agents.
Cutting spending leads to more spending! The “fiscal
contraction expansion” myth.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Australian people and place
 Australia has unique challenges.
 Proximity to South-East Asia – the new “growth” centre
– major changes in supply chain etc.
 Reliance on primary commodities for growth – “Dutch
disease” – Two-speed economy - East coast recession.
 Spatial disadvantage and spill-overs even with growth.
 Rising inequality.
 Climate change issues – carbon-based economy.
 Role of government versus the market.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
All development requires a minimal safety net
 The Federal Government has to gear its fiscal strategy
towards direct job creation.
 There should be a Job Guarantee - an unconditional and
universal employment guarantee paid the federal
minimum wage to any workers who want a job but
cannot get one.
 Purchasing a resource that has no market demand is not
inflationary?
 We should start with a Youth Guarantee – 25 per cent of
15-24 years olds who desire work are idle.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
3-year ARC-funded regional development
study
 Surveyed all Australian local governments to assess
unmet community and environmental need at local level.
 How many low-wage permanent jobs they could offer if
funded federally?
 Asked quantity engineers to cost the whole plan.
 Outcomes:
- Massive unmet needs
- Hundreds of thousands of jobs can be created – we have a
huge inventory of jobs identified.
- 547 thousand FTE jobs would require an investment of $8.3
billion a year.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
A renewed investment in skill development …
 A renewed investment in human skill development is the
most durable investment that a government can make.
 The Federal Government in partnership with other levels
of government should take responsibility to develop a
coherent and integrated national skills development
framework.
 Concepts like “new apprenticeships” have degraded the
concept of skill.
 This should be done within the context of a Job
Guarantee.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
National infrastructure with green focus…
 National infrastructure development with a focus on
fostering green industry initiatives and the skills that will
be required to sustain the new activities.
 Green jobs agenda – mostly currently focused on skilled
workers.
 But perfect vehicle for creation of low-wage, low-skilled
jobs with mechanisms for skills development.
 Huge regional challenge - land and water restoration,
degraded public infrastructure.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
12 Pillars of Competitiveness
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Industries and economies
 The Northern Territory is a regional economy
- Depends on a range of industries – extractive, public sector,
services (tourism) etc.
- Has high levels of income inequality.
- Has climate change challenges.
- Has indigenous communities juxtaposed to “economic assets”.
- Has growing population – labour-force.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Employment (2000=100)
150
140
130
120
110
100
90
2000
2001
2002
EFT-NT
Centre of Full Employment and Equity
2003
EFT_AUS
2004
2005
EPT_NT
2006
2007
EPT_AUS
2008
ETOT_NT
2009
2010
2011
ETOT_AUS
http://e1.newcastle.edu.au/coffee
Rise of Part-time employment
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Industry composition of employment - 2011
Other Services
Arts and Recreation Services
Health Care and Social Assistance
Education and Training
Public Administration and Safety
Administrative and Support Services
Professional, Scientific and Technical Services
Rental, Hiring and Real Estate Services
Financial and Insurance Services
Information Media and Telecommunications
Transport, Postal and Warehousing
Accommodation and Food Services
Retail Trade
Wholesale Trade
Construction
Electricity, Gas, Water and Waste Services
Manufacturing
Mining
Agriculture, Forestry and Fishing
0
2
4
Australia
Centre of Full Employment and Equity
6
8
10
12
14
16
NT
http://e1.newcastle.edu.au/coffee
Unemployment rate
Unemployment Rate
11
10
9
Per cent
8
7
6
5
4
3
2
1980
1985
1990
Australia
Centre of Full Employment and Equity
1995
2000
2005
2010
Northern Territory
http://e1.newcastle.edu.au/coffee
Underemployment
ABS Underemployment Rate
8
7
Per cent
6
5
4
3
2
1
1980
1985
1990
Australia
Centre of Full Employment and Equity
1995
2000
2005
2010
Northern Territory
http://e1.newcastle.edu.au/coffee
Unemployment plus underemployment
ABS Broad Labour Underutilisation Rate
18
16
Per cent
14
12
10
8
6
4
1980
1985
1990
1995
Northern Territory
Centre of Full Employment and Equity
2000
2005
2010
Australia
http://e1.newcastle.edu.au/coffee
Participation rate
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Regional and spatial research opportunities
 Development of spatial or regional understandings
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How is macroeconomic activity spatially distributed?
Clusters of social disadvantage – estimation and explanation.
Spatial econometric models.
Multi-level models and neighbourhood effects.
Development of new geographies in social science.
Labour mobility – migration and commuting patterns.
 Concepts of regional development
- How do regions grow?
- Role of public sector - tied in with buffer stock capacity.
- Skill development in regions.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Regions and sustainability …
 Industry restructuring – development of renewable
industries.
 Modelling specific industry change.
 Concept of spatial social disadvantage.
 National infrastructure … communications, transport.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Peoples and Societies
 Social aspects of economic development in Northern
Australia.
 Indigenous Australians …
 Social disadvantage …
 Rural-urban linkages …
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Climate change …
 Tropical countries face environmental challenges such
as urban air and water pollution, land degradation,
deforestation and biodiversity loss
 Modelling labour market implications
- Industry.
- Occupation.
 Developing critiques of “market-based” systems to
emissions.
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
Health …
 Tropical nations have some of the poorest levels of
health worldwide.
 Growing mental health issues …
 How to deal with disabilities at a regional level …
Centre of Full Employment and Equity
http://e1.newcastle.edu.au/coffee
http://bilbo.economicoutlook.net/blog
End of Talk
End of Talk