Adelaide: Decline and Fall

[mking]

An article I wrote recently might be of interest to economists and demographers and maybe anyone with a interest in Adelaide's future. Enjoy, Malcolm King

From the land of third rate politicians, to diabolically dodgy recruitment practices; from a state government that spent $73 million building a one way freeway and then 14 years later, built the return lane at a cost of $400 million; from the understaffed age care facilities to some of the highest energy bills in the world; from kamikaze car drivers in the land time forgot, to sewerage fees set to the market valuation of the owner’s property.

I bring you Adelaide.

With an opening like that, I’ve already lost half the SA readership. But as the state has some of the highest illiteracy and innumeracy rates in the OECD, who’s going to notice? Let us take a trip deep inside the psycho-sociology of Adelaide.

‘All happy families are alike; each unhappy family is unhappy in its own way,’ Tolstoy said. Adelaide is unhappy in an impoverished way. As a child raised in Adelaide, I remember it as a pumping, cosmopolitan city. Now, 45 years later, fearing the 21st century, it has turned Amish and has turned its back on the outside world.

Many think that the recession in SA is short term and once spending picks up, all will be well. Wrong. We are witnessing the dismantling of the old manufacturing and construction based economy - two pillars that have supported the state since World War 11.

This is the power of the Asian markets at work: low cost labour and high volume, low tech manufacturing. There are other factors such as the high Australian dollar and online competition but these are secondary issues. In South Australia the same marketing jobs appear over and over again, as organisations scrabble for crumbs from a bare cupboard.

SA’s key performance indicators (ABS and Labour Force) are shocking:

• In the final quarter of 2013, the local economy had shrunk by 1.0 per cent.
• SA exports comprise 14 per cent of the state's economy. Australia is 20 per cent.
• Private investment has fallen from 7.0 per cent in 1990 to 5.0 per cent in 2013.
• SA’s GSP is growing at 1.0 percent yet Australia is growing at 2.8 per cent.
• GSP has fallen from 8.5 percent in 1985 to 6.3 per cent.
• SA receives $1.30 back from GST revenues from Canberra for every dollar it spends. This is the horizontal equalization ‘begging bowl’.
• CBD vacant office space is 12.4 per cent and rising.
• Unemployment rose over the last 18 months from 5.6 per cent to 7.1 per cent (trend). The real unemployment rate (non-ABS methodology) is closer to 12 per cent. Real youth unemployment in Gawler and Elizabeth is close to 40 per cent.

According to DIAC/ABS, from 1984-2014 about 80,477 Crow Eaters fled the state permanently. Most were in their 20s and 30s. This needs some explanation. On average, between 20-30,000 South Australians ACTUALLY leave the state every year and in strong economic times, immigrants and make up most (but not all) of the short fall. In poor or indifferent economic times, the departures out weigh the arrivals by up to 4000 people per year. Since 1984, that has totaled 80,477 people. During the last ten years, international migrants have back-filled 70 per cent of those who left. Now migrant numbers are falling due to local and international factors (no jobs and the rise of Asia as a migrant destination).

Many of the departees were the brightest and best – the high achievers; the ambitious ones, the mad ones, the dreamers, hungry to do well. We invested our rates and taxes in them – and this is how they repay us! So it goes. Labour goes to where the work is. This demographic flight compounds the macroeconomic forces squeezing the state.

I don’t support eugenics. It has some nasty ideological ramifications but in Adelaide, it’s hard to ignore. Over the last 30 years or so, almost the complete entrepreneurial and professional leadership class has left. This has created a raft of psycho-social problems.

Compared to the eastern states, the professional operating standards of many organisations are extraordinarily low. Resilience is at low tide and there is a baffling sense of entitlement, when no entitlement has been earned. Rights are confused with privileges and much tactical planning appears aimed at obtaining a sinecure. This has created a ‘sheltered workshop’ culture. People don’t rock the boat even when boat rocking is the thing to do.

SA media would never publish this sample of the companies that have closed in the last four years. In fact only InDaily, an online newspaper, publishes exposition. It’s not a ‘happy face’ story: Mitsubishi, the Port Stanvac oil refinery, ROH, Bridgestone (production), New Castalloy, Accolade Bottling Plant (Reynella), Sanitarium (production), Trident Tooling, Autodom, RPG Group, Bridgestone, Clyde-Apac, Priority Engineering Services, Modular Furniture, Sheridan, ADCIV, PSG Elecraft, Mary Martins, Qantas catering, the Port Lincoln Tuna Cannery, Red Ochre construction, Angas Park, McCain Foods (Penola) and many more, have gone.

Hundreds of jobs have been lost at Forestry SA and Hills. Visocorp and Tenneco are in serious trouble. OneSteel, Detmold and Elders are looking very shaky. There have been significant sackings in print and photographic at The Advertiser. These businesses closed or downsized because they were no longer competitive.

Other businesses such as BAE Systems, Redarc, Sage Automation, Sydac and Codan, are doing well. They have reached out to international markets or are making parts up the value chain.

Every now and then an expatriate with national or international experience in their late 40s or 50s will return, usually to look after ageing parents. When they apply for local positions, they are invariably knocked back because they are too experienced. Age prejudice is endemic in Adelaide. When merit dies, the city falls. Recruitment apartheid in ‘Adders’ sails close to criminality. It’s a nail in Adelaide’s coffin.

What does SA have a lot of? Old people. About 43 per cent of the state’s population are Boomers. Indeed, much of Adelaide’s popular culture revolves around the long look back to yesteryear, when facts such as owing $14 billion in projected state debt and having a real unemployment rate of about 12 per cent and rising, was unheard of. ‘Pass me a chocolate frog cake’, say the oldies, and pine for the ‘good old days.’

The ageing of the Boomers is a growth retardant. There is no will to harvest the skills of those transitioning to retirement. I will discuss the rise of a voting bloc gerontocracy and reactionary ‘nay saying’ in another article.

Here’s a small fact that tells a larger story. In 2012-2013, 10,100 South Australian dwellings had their power cut off because they could not pay their bills. This is a jump of 50 percent from ten years ago. That’s more than 6 per cent of all dwellings in the state. According to the media (always dangerous to source), the number of customers who could not pay their water bills has also increased to about 6000 customers per year. The above is evidence of structural change, not ephemeral change.

These are the preconditions for economic collapse. The socio-economic forces - including intransigence in the face of globalism and parochialism - are well documented, and especially in old manufacturing based cities. I’ll leave you ‘to Google’, Flint, Michigan; Mansfield, Ohio; Johnstown, Pennsylvania and many more in the States, which have similar (but different) problems. Instead of adopting half-baked urban reclamation measures such as Renewal SA, see what the Germans did in Leipzig, Dresden and Potsdam.

Here comes the tipping point. Holden and a significant part of the auto parts supply chain will close in 2017. Experts put the job losses in the automotive sector and allied trades at about 15,000 people. Less than one quarter of Holden workers will find a job again in SA. Those aged 50 and over never will.

Both Holden and the Air Warfare Destroyer project will start to wind down in 2016. At the time of writing, it looks as though the new submarine project may not proceed. This means a massive evacuation of skilled workers out of the state. State Gross Product will drop between $8-$10 billion and $5 billion in wages will evaporate. More than 25,000 jobs will be liquidated with a cruel ‘knock on’ effect that social workers and the police see daily.

Will Adelaide die? No. Large cities of more than one million people rarely do. These scenarios are complex but liquidation of about $100 billion of GSP over the next 20 years, would not be unreasonable. Unemployment would climb to 18 per cent and property values would first stagnate and then plummet, leaving those with mortgages to fund debt on a depreciating asset.

SA desperately needs a private sector supply side solution. But while the media concentrates on puff pieces, and the public remains in the dark or fixated on attacking the unions or political parties, the situation grows worse. The real penalty will be the continuing loss of human capital.

Published: http://www.onlineopinion.com.au/view.asp?article=16588

[pushbutton]

Wow!

[The Scooter Guy]

Adelaide is soon going to get pooped on by Tony Abbott!

[Nathan]

Whilst I don't deny their are both existing problems, and new ones on the horizon, I find this awfully pessimistic and at times, making issues seem worse than they really are. (For instance, putting the closure of a small book store who over extended themselves in with somewhere like Mitsubishi as examples of companies that have "left" is just silly. And The Advertiser downsizing their print and photographic departments has got nothing to do with problems in Adelaide, that's something that's happening at papers world wide.)

You say that over the last 30 years or so, almost the complete entrepreneurial and professional leadership class has left. I feel that in the last 5 years or so, this has started to slow. It's still a problem, but not to the extent that it was in the 2000's, and hopefully that slowing continues.

[AdelaideGold]

Quite a biassed opinion and more of a rant.

[Will]

Another typical negative article, written by another typical negative Adelaide person. You have only focussed on the negatives without focusing on the many positives - i.e. why did you not mention the growth in the education sector? why did you not mention that SA leads the nation in renewable energy? And if you used the closure of the Mary Martin bookshop; essentially a small business as evidence that Adelaide is "collapsing", may I posit to you that the opening of the Krispy Kreme doughnut factory as evidence of a bright future!

Essentiallyy Malcolm, what is the point of your article? You offer no solutions....

[AdelaideGold]

Another typical negative article, written by another typical negative Adelaide person. You have only focussed on the negatives without focusing on the many positives - i.e. why did you not mention the growth in the education sector? why did you not mention that SA leads the nation in renewable energy? And if you used the closure of the Mary Martin bookshop; essentially a small business as evidence that Adelaide is "collapsing", may I posit to you that the opening of the Krispy Kreme doughnut factory as evidence of a bright future!

Essentiallyy Malcolm, what is the point of your article? You offer no solutions....

[Brucetiki]

If that article was any more negative it would be News Corp worthy

[Waewick]

Seems overly negative but some valid points are made.

SA is in struggle street but that doesn't mean something can't be done

[duke]

Adelaide is a re-enforcing pot of negativity. Negativity is self fulfilling prophecy.

In the past I have been negative, but with all that is going on around the city, to me, it seems like things are changing.

International events
Numerous new international brants
Numerous new construction projects. We have a huge number of construction projects in the CBD compared to other cities around Australia in terms of population.
New world class hospital and education precinct

Earlier this year there was also the [*internationally produced*] docco called Smart Cities, the first episode featured Adelaide. The only Australian city to be featured.

http://www.news.com.au/entertainment/tv ... 6645609984

The OP has taken the easy way out by bashing Adelaide. It is always easy to pick the negatives out of something. It takes a true journalist to research and show the other side.

[phenom]

Generally speaking a lot of the statistical comparisons included in the original article are simply a result of lower population growth. This obviously means SA's share of 'national totals' in almost everything will inevitably decline. Per capita measures, which are less reported on but arguably more relevant to determine whether a city or state is 'progressing', paint SA in a much more favourable light.

In terms of exports and our industry - let's be clear that SA does not have a large mining sector and many of our exports tend to have been manufactured goods. So yes, we have missed out on explosive growth in minerals exports (to a large extent) and the high $A have put the knife into the competitiveness of many of our key exports. That's bad for the State but not necessarily a reflection on how we are somehow failing in a 'unique' way relative to other (mainland) states.

I think the bit about cultural issues is difficult to really assess. For starters, you need to compare like with like. Much of the 'dynamism' of say WA or QLD is entirely the result of nature blessing them with booming commodities within their State borders. The change has been driven by that reality, not necessarily anything to do with a creative, open or entrepreneurial populace. I've travelled quite a bit around Australia for work and I've seen poor attitudes everywhere. Whilst AdelaideNow is full of people who seem to think we are the only city where people complain about public transport, housing, access to medical care or taxes, this is not an accurate reflection of the facts.

I agree we need to continue being more open to change, but I feel we are seeing it. While things are necessarily constrained by tight finances (and having a Federal Govt that seems intent on not assisting SA to the extent it assists other states) I can clearly say the last 5 to 10 years have seen many breakthroughs and improvements here that I didn't expect to see. Freeing up of planning limitations around the city, the massive expansions of the biomedical industry/precinct and at least beginning to address the North-South corridor - these are all great things for SA.

[mking]

Some good comments here. It's true that I can see some areas of small growth - green shoots Jay likes to call them. Some young people are having a go in the city, starting bars. Unfortunately, the fundamental structure of the economy is crumbling - especially in manufacturing and construction. SA never really had a mining boom but even if Olympic Dam fires up again, it won't be a saviour. In fact, it will merely condemn us to producing low value commodities. The solutions are complex as most of the employment in SA - apart from the public service - is through small businesses. Lowering taxes are a good idea but they tend to be one offs. There is always the danger that profit does not translate in to jobs but another beach house - if you know what I mean.

One idea is to target specific industries in China and India and see if they need to replant to upgrade their manufacturing - go high end. If so, they will need SA workers. The one unique selling point is we have excellent tradespeople in automotive, defence and manufacturing. That would take five to ten years.

I'm mindful though that many Crow Eaters think we're in a recession because of state government political incompetence. This could be a factor but the real culprit is massive and glacial macroeconomic change. Check out the number of for lease signs. People are leaving.

One point which gives you an idea of the internecine problems SA faces: the state government has appointed Malcolm Jackman as CEO of troubled Defence SA. Two years over due, $500M in debt, etc. When Mr Jackman walked from Elders in Dec 2013, it had just posted a $505 million loss for the year to September. When he took over from Elders in 2008, it had a $1.4 billion debt. Under Jackman’s leadership, it lost a further $1.59 billion. He was reported in the SMH on (28 Nov 2013) as saying his greatest achievement was ensuring the survival of Elders, which has seen its share price crash 99.5 per cent since January 2008 when it was trading at $23.30. On the day he left, Elders shares were trading at 11.5¢. Up there for thinking.

Anyone see a problem with that? Have another ice coffee.

The article is negative but not with malice of forethought. It is standard critique of a city state.

[Will]

Some good comments here. It's true that I can see some areas of small growth - green shoots Jay likes to call them. Some young people are having a go in the city, starting bars. Unfortunately, the fundamental structure of the economy is crumbling - especially in manufacturing and construction. SA never really had a mining boom but even if Olympic Dam fires up again, it won't be a saviour. In fact, it will merely condemn us to producing low value commodities. The solutions are complex as most of the employment in SA - apart from the public service - is through small businesses. Lowering taxes are a good idea but they tend to be one offs. There is always the danger that profit does not translate in to jobs but another beach house - if you know what I mean.

One idea is to target specific industries in China and India and see if they need to replant to upgrade their manufacturing - go high end. If so, they will need SA workers. The one unique selling point is we have excellent tradespeople in automotive, defence and manufacturing. That would take five to ten years.

I'm mindful though that many Crow Eaters think we're in a recession because of state government political incompetence. This could be a factor but the real culprit is massive and glacial macroeconomic change. Check out the number of for lease signs. People are leaving.

One point which gives you an idea of the internecine problems SA faces: the state government has appointed Malcolm Jackman as CEO of troubled Defence SA. Two years over due, $500M in debt, etc. When Mr Jackman walked from Elders in Dec 2013, it had just posted a $505 million loss for the year to September. When he took over from Elders in 2008, it had a $1.4 billion debt. Under Jackman’s leadership, it lost a further $1.59 billion. He was reported in the SMH on (28 Nov 2013) as saying his greatest achievement was ensuring the survival of Elders, which has seen its share price crash 99.5 per cent since January 2008 when it was trading at $23.30. On the day he left, Elders shares were trading at 11.5¢. Up there for thinking.

Anyone see a problem with that? Have another ice coffee.

The article is negative but not with malice of forethought. It is standard critique of a city state.

You keep saying that there are increasing numbers of "for lease" signs. Can you quantify this with evidence?

The retail market reports consistently suggest that our "high streets", like Rundle Mall, Rundle Street and the Parade have vacancy rates around the average of 5%.

Furthermore, the office vacancy rates have increased throughout Australia, not just Adelaide. Indeed, in Brisbane the office vacancy rate is 14.2%, meanwhile in Perth it is 9%. Furthermore the most recent office market reports suggest that vacancy is actually expected to fall in Adelaide in the medium term with investment activity at 5 year highs.

Source: http://www.colliers.com.au/~/media/File ... 02014.ashx

[rev]

From the land of third rate politicians, to diabolically dodgy recruitment practices; from a state government that spent $73 million building a one way freeway and then 14 years later, built the return lane at a cost of $400 million; 

Have you bothered to pay attention at all to the political dramas going on in other states?
What goes on here is minor compared to the corruption scandals which have engulfed both Labor and Liberal in NSW. Surprisingly stumpjumper has little to say about the liberal scandals in NSW unlike his eagerness to talk about QLD labor.

Did you think about why the cost is more then four times as high as the original one way expressway?
If since last year it cost me more to fill my car with fuel, more for utilities bills, more to fill my fridge, if it costs my boss more to pay me, what makes you think that It will cost the government the same to duplicate the southern expressway as it did 14 years ago? Keep in mind that just because it's a duplication doesn't mean the same exact amount of work would be carried out. It could be more could be less.
But the cost is higher. Because that's the world we live in. The cost of things goes up every year. Infrastructure projects are not exempt.

Or are the details not that important when putting together a rant?

[rev]

According to DIAC/ABS, from 1984-2014 about 80,477 Crow Eaters fled the state permanently

Since 1984? Why not stretch it out further to colonial days.

You're more then a little late to the party. What you are ranting about is old boring cliche rubbish.
We've heard it all before.


Since you're another know it all whose got everything worked out and knows better then everyone else, can we expect to see you contesting the next state election with the aim of becoming premier?