1. REGIONAL PUBLIC POLICY IN AN AGE OF UNCERTAINTY CURRENT CONDITIONS AND POLICY IMPLICATIONS Tony Sorensen Adjunct Professor BCSS, UNE

2. AIMS 1.To explore the sources of economic, social and political uncertainty, especially at the regional level 2.To express the view that we are on a rising tide of uncertainty – for reasons that appear largely uncontrollable 3.To discuss the implications of my broad scenarios for regional public policy and affected communities 2

3. A WORLD OF RISING ECONOMIC UNCERTAINTY  Sources of Economic Uncertainty: 1.Economic Globalisation 2.Social Fragmentation (& the rise of global communities of interest) 3.Loss of Local Control 4.Complexity 5.Information Deficiency 6.Unsuspected Tipping Points 7.Socionomics and the Psychology of Business 8.Technological Wild-Cards 9.Planetisation of Environmental Threats 10.Chaos? 3

4. ECONOMIC GLOBALISATION  Integration of national economies stems from: 1.International trade (bilateral, multilateral, trading blocks) 2.Regional / national comparative advantage in production, coming sharply into focus with the rise of BRIC / other nations 3.Borderless flows of investment capital and domestic savings 4.Internationalisation of commodity & stock markets 5.The rise and rise of global corporations, not just those familiar to us living in OECD countries 6.Rising international protection of IP – even China now has IP to defend 7.Even, internationalisation of labour markets, especially in the minerals and energy sector, but also via a rising tide of economic migrants 4

5. SOCIAL FRAGMENTATION  C. 1850, Karl Marx identified two classes, labour and capital, and their contest dominated the political landscape for perhaps 140 years  Contemporary society looks much more complicated as society fragments along additional fault lines:  Multiple age bands  Gender  Marital status  Lifestyle preferences – including traditionalists and alternatives  Educational attainment  Religion & ethics  Ethnic status  SMEs vs corporations  Self-actualisation  Location (city vs country; region vs region)  Democratic Politics is becoming increasingly impossible because parties have to build inherently unstable coalitions to get elected 5

6. Loss of Local Control  As economies become more global and society fragments:  Power ebbs from periphery to state and nation; and from nation to usually unelected international organisations  It becomes more difficult to speak with one local voice – cleavages in local public opinion as conflicting interests try to seize centre stage  Modern social networking aids social and economic cleavages – kindred spirits in cyberspace help cement and promote a cacophony of views  Local resources are often too thin and spread too widely to achieve aims of regional leaderships 6

7. COMPLEXITY & INFORMATION DEFICITS  The fragmentation and competition just described drives complexity:  More interest groups and associated tastes and preferences  More means of placing one’s views before the general public  Contests of ideas requires considerable effort (and resulting delays) placed on coalition forming, and the compromising of those ideas – but this may also be the fount of creativity (Jane Jacobs)  The cacophony of partisan information creates uncertainty of itself that would have Heisenberg turning in his grave [A leading proponent of the Copenhagen School of Quantum Mechanics, he introduced us to the curiosities of wave-particle duality, superposition and entanglement which are much more comprehensible than today’s society !]  Each of the contestants in the processes is armed with deficient data and theoretical understanding of what they are campaigning for, and imperfectly select from among the incoming tidal wave of information at their disposal 7

8. TIPPING POINTS  Tipping point theory also underlines how fragile our economies and societies may be  History is littered with seemingly permanent and stable societies, businesses and governments that appear to collapse with little warning: [the Soviet Union, the Burmese Junta, Easter Island’s civilisation, the French monarchy in 1789, the cod fisheries of Newfoundland and Nova Scotia, any number of financial institutions slain by the GFC]  And for those going under, there are many times more near misses 8

9. Socionomics and the Psychology of Business  The GFC has put a nail in the coffin of many economic theories promulgating market efficiency.  Kahneman and Smith won the 2002 Nobel Prize for economics, and the former’s citation reads: ["for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty“]  Bob Prechter, a former wall street trader, backs Kahneman up with his hybrid discipline of socionomics which argues that economic actors are heavily motivated by behavioural characteristics additional to hard data (which is in limited supply) – markets are moved greatly by the likes of fear and greed, depression and exuberance  For the record, I’ve published an article identifying >40 different behaviours and attitudes affecting regional development! 9

10. Technological Wild-Cards  And if all this wasn’t enough, technological progress (scientific, goods and services, production methods, & management) is constantly tossing hand- grenades into the established order  Simultaneously we are destroying established orders but unlocking a cornucopia of opportunity – applies to business, communities, and governments alike  I spend time imagining what a world would be like where:  Many of our major diseases are tamed or eliminated  Artificial intelligence and expert systems assist our lives quickly and efficiently  All manner of robots service our every needs  We can readily be transported into a variety of virtual worlds (or into space)  Use of IT systems much better suited to comb the internet for information we need  Renewable energy is abundant and cheap and transport bottlenecks abolished  Advanced agriculture largely eliminates hunger and delivers an even wider variety of food  Smart buildings and materials ease the daily chores of living  These and others are all in the process of arriving right now. Are we prepared? NO 10

11. ON THE EDGE OF CHAOS?  Perhaps, then, we’re teetering on the edge of chaos  Chaos theory seeks to demonstrate how seemingly small event (a butterfly flapping its wings in Amazonia) can rapidly trigger events that spiral out of control (like a hurricane in the Atlantic Ocean)  Economies seem very much the same!  The current GFC has a long way to run, will spring many nasty surprises for businesses and communities, seems to be spiralling out of control for both governments and markets, and slaying governments of all political persuasions (but substituting those that are equally incompetent! Plus ça change, plus c’est la même chose) 11

12. COULD MATTERS GET WORSE?  Harbingers of uncertainty:  The rising tide of technology – and its acceleration  Ever-shorter elapsed times between invention, innovation, and adoption in the market place  Economic bankruptcy of some nations, sharp rises and falls in economic growth among others, and badly handled economic transitions (Japan made a mess of its post 1990 transition and China could repeat that effort quite easily). All will reshape the level of global market demand, market destinations, currency alignments, debt, etc.  Political, social and business consequences of demographic restructuring  The wild cards of environmental change  Continued social fragmentation  For rural regions, the accelerating corporatisation of agriculture? 12

13. SURVIVING A PANDEMIC OF RURAL UNCERTAINTY  How best can we position rural regions not just to survive, but possibly to prosper from, an accelerating pace of change and a pandemic of uncertainty?  The short answer is by being adaptable.  Adaptable to what? 1.Technology – devising new (R & D), early perception and adoption of other people’s, adaptation of existing ideas to new uses,: gaining first mover advantage 2.Shifting patterns of local resources – early perception of emergence of new resource opportunities; acknowledging decay or devaluation by the market of traditional resources, and their active reworking, re-evaluation or re- positioning 3.Changing market conditions: where are the emerging market opportunities? How solid are they in size, growth, duration? What supply and demand conditions exist now and in the medium term? Where is competition from alternative suppliers going to come from, and how credible are those competitors? How will opportunities be affected by changes in the value of the $A or other macro-economic changes (e.g. fiscal structures)? 13

14. ADAPTABLE TO WHAT … AND HOW 4.Changing cost and availability of capital; configuration of financial institutions best able to deliver our capital requirements at a competitive price 5.Changing demand for consumer and producer services (including infrastructure supply): quality, quantity, type, ruling prices, etc. This obviously involves demography, lifestyles, associated spending patterns, and industry structure / organisation / purchasing strategy for inputs and so on  In turn, adaptiveness depends on:  Future orientation / imagination  Ability to let go of the past – albeit selectively  General business / market intelligence + industry-specific intelligence (i.e. lots of good quality information)  High quality leadership: civic, community and business; local, regional and scales above; individual & collective  Education (which cannot be stressed enough) – skills, business culture. etc.  Creativity, energy, enthusiasm, networking (psychology of actors) 14

15. RE-CREATING SILICON VALLEY IN NEW ENGLAND  California’s Silicon Valley (which is inventing tomorrow) has a finely honed adaptive culture involving all the above ingredients and perhaps our task is to adapt its culture to New England  Two questions: is this a feasible agenda? And how best might the appropriate culture and institutions be devised and operated?  On the one hand, New England is hardly a replica of Silicon Valley; on the other, rural Australia has a long history of successfully developing or adapting technology to its extensive and thinly settled environment  Take agriculture: Australia’s highly developed system of agricultural R & D … and subsequent dissemination through the farming community delivered stellar TFPG over many years according to Productivity Commission  But are there comparable R & D / innovation systems that could be instituted beneficially in other industry sectors? [Perhaps resembling Germany’s auto industry … and others] 15

16. RE-CREATING SILICON VALLEY IN NEW ENGLAND 2  And could we develop regional cultures constantly combing global technological developments for new industries and productive systems with local relevance – yielding first mover advantage?  What techniques / approaches might promote forward thinking cultures? Social Media: Facebook, Linked-In, Blogs? Research Institutions? Business forums? All of these? [One idea might be to borrow from the Japanese and import replicas of Tokyo’s “dating salons”! These are actually forums to bring together young people with bright ideas, marry like minds, and shower them with venture capital. This happens all the time in Silicon Valley’s bars and cafes!] 16

17. CULTURE MANAGEMENT  We need a future oriented, inventive, can-do culture at the regional level, preferably at the forefront of technological advance – to maximise wealth, income, jobs, and quality of life. There seems to me little mileage in constantly and reluctantly playing catch-up to a world passing us by.  This is largely a psychological exercise – but one influenced heavily by governments and local communities in all manner of ways not always associated with regional policies - for example general macro-economic management 17

18. ALL TIERS OF GOVERNMENT  Encourage future orientation through:  Creation of a stable investment climate with adequate venture capital supply at reasonable cost  Fiscal and IP systems designed to improve reward / risk ratios for embracing the frontiers of technology  Incentives for business investment in the latest technologies (as per accelerated depreciation of assets  Absence of subsidies to prop up indigent business – forcing them to confront market reality, the survival of the fitter (-est)  Strategic infrastructure investment  Delivery of top-flight education services (directly or via regulation)  Selective investment in R&D likely to deliver maximum returns in sectors where Australia has enduring international comparative / competitive advantage  Designing a social security system facilitating adaptability of skills to changing business needs / location & maximal workforce participation  Effective environmental planning / management 18

19. LOCAL INSTITUTIONS  The shaping of regional development cultures also substantially rests on local institutions and their leaderships:  Universities and TAFEs – Silicon Valley is heavily liked with Stanford University at Palo Alto … and Boston with MIT and Harvard  Private &/or public research institutions and think-tanks  Cultural richness – theatre, music, literature  Groups promoting environmental quality  SMEs providing quality services (including cafes and restaurants)  Business networks / networking opportunities (the larger the pool of innovators the more infectious it is likely to be, especially if networks are open and welcoming rather closed)  Infrastructure opportunities such as business incubators – for mutually supportive SMEs 19

20. IN CONCLUSION – REGAINING LOCAL CONTROL?  Local economic development is a complex, multi-faceted, and inherently difficult task  We’ve been looking for the elixir formula for decades, but it is unlikely that a single formula exists  Effective development strategies blend best practice economic, social, cultural, environmental, infrastructure, and institutional structures  But these qualities vary across regions according to their geographical / resource composition and histories  While federal and state governments (mostly the former) can influence the seed bed of development, local action probably rests heavily on those psychological / behavioural attributes mentioned previously  The principal task at the regional level, as I see it, is to engender innovative, creative, adaptive, and future oriented cultures capable of propelling economies forward to greater opportunity and wealth  Perhaps we should start by laying NE down on the psychologist’s couch 20