The best of times and the worst of times

South Australia can thrive if it rises to the challenge of climate change, writes JOHN SPOEHR NOT since the postwar economic boom have we witnessed a period of economic growth as persistent as the current one. The economic numbers that have flowed from this have been a dream come true for the state government. Over the five years to 2007-08 South Australia’s gross state product rose from around $59.5 billion to over $65.6 billion. Exports grew by around 13 per cent to $9.9 billion. An additional 61,000 jobs were created, driving unemployment to record lows. The outlook for further growth is positive, with around $45 billion worth of major infrastructure projects under construction or in the pipeline in 2007-08. It is the best of times and the worst of times. Instability in the United States, high interest rates, escalating petrol prices and a high Australian dollar are threatening an economic slowdown in Australia. Meanwhile the industrialising giants of China and India are set to fuel record demand for our mineral resources for decades to come. Some sections of South Australian manufacturing industry are growing while others are contracting. Nearly seventy years after the war economy of the 1940s underpinned the growth of a major munitions industry in South Australia, a new wave of defence industry investment is helping to offset some of the negative impact of domestic economic shocks like the closure of Mitsubishi. Meanwhile, South Australia is set to experience a mining boom. In a recent speech to the National Press Club, Premier Mike Rann proclaimed that South Australia is “poised to be the new Western Australia” - a resource rich state fuelling the seemingly insatiable appetites of mineral hungry China and India. If it proceeds on the scale proposed, the multi-billion dollar expansion of the Olympic Dam mining operation at Roxby Downs will certainly have a dramatic impact on the South Australian economy. The development of the Olympic Dam site is expected to generate around 8000 jobs during the construction phase and up to 20,000 indirect jobs. If this eventuates then unemployment in South Australia could be driven down to around 4 per cent over the next five years. Global economic instability might work against this however. The problem is that booms have a habit of periodically busting. The short-term risk is that the sub-prime mortgage crisis in the United States will combine with rising oil prices to plunge the US into a deeper recession than anticipated. This would reduce demand for our mineral resources and commodities not only in the United States but also in China and India. While strong demand would eventually return, the risks associated with a high level of dependence on mineral and commodity exports would be revealed. South Australia can reduce the negative impact of economic shocks by fostering industrial diversification, particularly climate change responsive diversification - a strategy that transforms South Australia from a carbon hungry economy into a climate change responsive economy. Great economic and environmental rewards await regions that respond urgently to this fundamental imperative. A vibrant manufacturing industry is a necessary ingredient of this transformation. Despite a number of major factory closures in South Australia, manufacturing remains one of our most strategically important sectors and largest employers. It employs around 100,000 South Australians and is responsible for generating thousands of other jobs in sectors that service the industry. Ensuring that manufacturing remains an engine of employment growth and the economy requires the adoption of a pragmatic national industry policy that responds to the competitive pressures facing the sector. The Rudd government’s reviews of the automotive and clothing, footwear and textiles industries are a welcome first step in this direction. A combination of sensible tariffs and investment incentives should be used to propel a ‘green’ transformation of manufacturing industry in Australia. In the short term, the federal government’s $500 million green car innovation fund can be used to encourage General Motors Holden to fast track the production of hybrid vehicles in Adelaide. The businesses that thrive in the future will inevitably be those that respond to the environmental imperatives that face us today. They will be the providers of goods and services that enable a rapid transition to a low carbon economy. South Australia already has some of these, but it needs to increase the scale of their operation. With an increase in subsidies for the installation of solar energy technologies, the solar industry could eventually overtake the car industry in South Australia. South Australia has a thriving educational export industry, attracting a growing number of overseas students to study and live in the state. While it will prove difficult to sustain this growth over the medium term as countries like China and India expand their educational infrastructure, the education services export revolution is set to be a major contributor to the state over the medium term. Successfully responding to the economic threats and opportunities that lie ahead requires facing the momentous challenge that global warming represents. The River Murray is dying and our water resources are depleted. This undermines the growth prospects of our critically important agricultural and wine industries, which must be transformed to adapt to climate change. We cannot ensure a prosperous future for our children unless we stop harming the environment that sustains us. There are many other challenges that are foundational for a thriving economy and a fair and prosperous society. Managing the implications of South Australia’s rapidly ageing population and workforce and accelerating the modernisation of our public transport, health, education and communications infrastructure are among the most pressing of these. • John Spoehr is executive director of the Australian Institute for Social Research. This article first appeared in the Adelaide Review. Photo: Adrian Matthiassen/iStockphoto.co