Diversification for Greener Regional Industry and Sustainable Development

Rachel Stock

Rachel Stock represented Central Queensland University at the Y20 Summit in China.

Abstract

Diversification is currently being promoted as a means of ensuring continued growth in the economy as the mining slow down begins having an increased effect. However can this also establish a demand and willingness to create, promote and adopt the kind of environmentally friendly technologies that must be adopted moving forward to combat climate change. 

With the winding down of both manufacturing and mining operations across the country, much focus has turned to how Australians can utilise innovation to carry the economy forward. However, regional Australia has unique challenges with the reductions in these industries. Issues surrounding the labour benefits afforded by industry, economic reliance and public support relating to the industries will be considered. The problem of industry reliance can also be considered on a global scale, with similar projects being undertaken in the communities of the Appalachian Mountains in the United States, where regional communities were reliant upon mining and milling. By comparing the economic characteristics of affected regions across the G20 with those where the Murray Darling Basin Economic Diversification Program was successful in assisting businesses to diversify, recommendations can be made as to how such economies can be assisted to develop sustainable growth and industry using an adaptation of the program. Further this research, will investigate how a region’s industry reliance may hamper support, development and implementation of new sustainable technologies.

Policy Recommendations

1.     A funding model to be established to assist regional areas Australia to move away from ‘old industry’ and develop economies based on sustainable industry with a greater focus on positive environmental outcomes.

2.     Development of a support framework to assist emerging businesses or start-ups with business models which seek to promote a shift to utilisation and accessibility of sustainable technology across regional Australia.

3.     Infrastructure funding and projects, designed to stimulate growth and to assist in diversification, be evaluated on sustainability in terms of permanent local employment, access to emerging technology and long term environmental efficiency.

Introduction

The sustainable development goals released as part of the 2030 priorities set the tone for a focus on creating economic growth that is both environmentally and financially sustainable. The concepts of sustainability and reduction in inequality are extended to not just a global ideal but a practical and achievable target to create equality and competitiveness both within and among countries. This means creating an environment where business and local economies including those of rural and regional areas are equally as competitive as metropolitan centres through diverse and sustainable development.

As outlined in the G20 China 2016 agenda, since the 2008 global financial crisis, stability of the global economy has been a major priority of the G20. Stability was something which was achieved in part in Australia as the mining boom and significant economic stimulus projects allowed production levels, jobs and income to be supported during an otherwise turbulent time across the global economy. However, a combination of factors now see both the mining and manufacturing industries beginning to contract in Australia and the economy, particularly those of Regional Australia are feeling the negative effects of shifts away from these industries.

With a significant focus being placed on energy efficiency (Sun, Y. (2016, April 4). Energy efficiency tops G20 agenda for 2016.) at this year’s G20 it is important that as economic diversification is being considered; positive environmental outcomes are not just an additional benefit, but rather an objective. The Murray Darling Basin Regional Economic Diversification Program is one of the largest initiatives to seek to establish diverse regional economies in Australia. However, if an adaptation or expansion of this program is to be considered, a stronger emphasis on environmental efficiency must exist.

Consideration will also be given to the study undertaken in the Appalachian Mountains (White, M. (2014). Case studies in economic diversification) and discussing the five keys identified to establishing more diverse economies and how the general principles can be adapted to assist in the diversification of many other economies. The keys identified can be utilised to create policy initiatives across the world to assist in creating competitiveness within and amongst countries.

Factors Preventing or Limiting Adoption of Sustainable Industry

Across regional Australia, the problem of communities that are supported by a predominant industry, such as the mining industry, having a hold on the workforce (Department of Infrastructure and Regional Development. (2015). State of regional Australia 2015 - progress in Australian regions) is an identified problem, particularly with reference to the high wages afforded to mining employees (Australia Bureau of Statistics, Towns of the Mining Boom, 2013) limiting the competitiveness between employers. High percentages of the population are being employed in this industry which leads to broad community support and reliance directed to the industry and it’s associated businesses. This community support even extends to expansion within the industry even where the business case for such expansion is questionable (Cox, L. (2015, December 16). Queensland court agrees Adani overstated benefits of Carmichael coal mine).

Another problem relating to diversification has arisen as Commercial viability of emerging technologies in competitive markets where existing technologies can be produced at current or improved rates of cost efficiency. Grants and funding may assist to reduce the inherent risks of business and encourage more start-ups, provided their business plans align with the sustainable objectives.

Whilst the National Innovation and Science Agenda has recognised this issue, the success of plans to support innovation, start-ups and diversification is yet to be determined. Encouraging cooperation between business, start-up, government and alternative capital sources is one way to combat arguments against profit motivated businesses being the recipient of government funding and create long term investment relationships.

Evaluating Objectives and Outcomes of the Murray Darling Basin Diversification Program

The Murray Darling Basin Regional Economic Diversification Program (MDBREDP) is a measure designed to assist in the diversification of regional economies most likely to be affected by the limitations placed on existing industry through the implementation of environmental mitigation plans (‘Strengthening the Murray-Darling basin economy - business & industry in New South Wales’, 2016). It is a program driven by the acknowledgement that environmental protection was no longer optional, the MDBREDP remains in its infancy and longer term cost benefit analysis will need to be undertaken however for the purposes of this paper, the objectives of the program will be considered against the stated outcomes of projects already funded.

Projects, which have received funding thus far, have been publicly announced with the number of jobs created promoted as the major benefit (Minister for Infrastructure and Regional Development. (2015, May 21). $18 million for Murray-Riverina diversification projects.). The stated objective of the independent selection panel was to seek projects that ‘involve the development of sustainable partnerships with government, the private sector or not-for-profit organisations to support joint investment in regional communities’ (Minister for Infrastructure and Regional Development. (2015, May 21). $18 million for Murray-Riverina diversification projects). Creating joint investment across regional economies is important, and is identified as one of the keys to diversifying in a paper on economic diversification in the Appalachian Mountains (White, M. (2014). Case studies in economic diversification), as such this objective is presumed to be a positive shift for the eligible regions.

The MDBREDP round one funding was promoted as creating at least two-hundred and fifty new jobs across regional New South Wales. Whilst in regional economies, job creation is vital to ensuring positive economic and community outcomes, the purpose of the Murray Darling Basin Plan and the necessary environmental improvements cannot be forgotten. Of the twenty-one projects selected and published in round one, a limited number promote broader environmental efficiency as a result of the funding received.

Adapting the Model

An expansion of the MDBREDP to other areas of regional Australia to promote diversification in a sustainable fashion whilst in principle remains a valid policy proposal, requires modification to ensure that environmental sustainability is a high priority. Whilst further research and investigation into any adaptation or expansion is required, to achieve positive environmental outcomes, those seeking funding must prove that their business plan results in improved environmental efficiency for existing businesses, or new business with strong environmental goals across their operation.

Alternative Approaches to Diversification

A similar project was recently undertaken in the Appalachian Mountains, where mines and mills had dominated the economic landscape for a significant period of time. The research and case studies collated by White (2014) are prefaced by the acknowledgement that there exists no ‘silver bullet’ which can create diverse economies across the board. This is due to the uniqueness of each region and town and the characteristics of their economies. However, there are five keys to establishing a more diverse economy which are identified in the paper:

Creating collaborative regional planning and implementation systems focused on economic diversification.  

By creating structured regional planning and an environment that promotes collaboration, regions can be better positioned to take advantage of opportunities that arise as well as being readied for potential economic shocks. White suggests that cooperation between parties and regions can also lead to better use of opportunities such as State and Federal funding.

Building local and regional economic ecosystems that support diversification.

One of the major activities White identifies here is creating ecosystems which support entrepreneurship. “Investing in entrepreneurship increases the likelihood that new companies will emerge in the region to replace those that inevitably die as a natural part of the economic cycle”. Australia is beginning to recognise the importance of such measures through programs such as the national Innovation and Science Agenda.

Connecting regional assets to external demand/markets.

This key identifies the need for regions to leverage available assets as the nature of some regions means that individual locations may not have existing assets but the greater community may include universities, employment centres and tourism opportunities. Cooperation between neighbouring regions can lead to more efficient use of such assets, and even drive local demand for the services provided, such as local and domestic tourism.

Enhancing the skills and capacity of the area workforce.

Having a diverse range of skills in the workforce is absolutely essential to creating diversity within the economy. Considering the Australian Bureau of Statistics data mentioned above, which showed that regional areas supported by industry do not show the same level of diversity in education and skills as diversified metropolitan economies.  The Appalachian study suggests strategies for diversifying the regional skill base include investing in education and training as well as attracting professionals and people with different skill sets to move to the regions.

Encouraging reinvestment of wealth within region.

White suggests that the most basic strategy for local wealth retention is local business retention and expansion (BRE). Encouraging supply and demand to be met locally is also another strategy to ensure that money remains within a community, and this can be seen through numerous ‘Buy Local’ campaigns.

Using Infrastructure to Stimulate and Diversify

Australia has also historically used infrastructure as a means to create economic stimulation, following the 2008/09 Global Financial Crisis, the Australian Government implemented one of the largest economic stimulus packages in the OECD (Leigh, A. (2012). How much did the 2009 Australian fiscal stimulus boost demand? Evidence from household-reported spending effects.), using a variety of measures to limit the negative effects of the global recession.  The success of both infrastructure and household stimulus packages has been recognised globally (Stone, C. (2013, June 3). It’s not just the size of your stimulus package)(Development & House Standing Committee on Infrastructure, 2009).

The use of infrastructure to create jobs within a region is a widely recognised and utilised policy (Brun, L., Jolley, G. J., Hull, A., & Frederick, S. (2014). Infrastructure Investment Creates American Jobs), however with the agenda of the G20 shifting to efficient energy and effective climate mitigation, infrastructure investment must also adopt this focus. Government funding and investment in infrastructure must develop a longer term approach to energy creation and provision. There are many urban development plans now stressing the importance of building and developing models which can adapt to a changing climate, as well as placing increased importance on energy efficiency in urban developments (Norton, B., Bosomworth, K., Coutts, A., Williams, N., Livesley, S., Trundle, A., Mcevoy, D. (2013). Planning For A Cooler Future: Green Infrastructure To Reduce Urban Heat).

Conclusion

Whilst there are numerous ways regions across the world are currently attempting to diversify their economies for a variety of reasons; it should be a focus of the G20 nations to create competitive cooperation within and amongst nations in order to achieve successful economies capable of supporting their communities to potential future economic shocks.

As part of this diversification focus, the opportunity to encourage both economic and environmental sustainability should be welcomed, and government support of diversification projects must emphasise the importance of this environmental objective. Energy efficiency and access to emerging technologies is a goal which aligns with many international priorities and in the spirit of competitive cooperation, it is important that this be recognised as something worthy of focus and even funding.

Innovation and diversification whilst admirable goals, also require practical solutions to support regional economies across the world in a time where old industry is nearing the end of its natural economic life. When the commercial benefits of such industries are no longer as attractive as they once were creating an environment supportive of innovation, start-ups and diversification is vital.

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