Transitioning Regional Economies

29.1.1 What has the Commission been asked to do?

The terms of reference for this study (set out at the beginning of this report) essentially ask the Commission to:

identify regions that face significant challenges in successfully transitioning to a more sustainable economic base and establish an economic metric to rank regions most at risk of failing to adjust

identify, for such regions, factors that influence their capacity to adapt to changes in economic circumstances

devise an analytical approach for assessing the scope for economic and social development in regions, and examine prospects for, and inhibitors to, change to the structure of regional economies.

Although the terms of reference highlight the slowing of the mining investment boom as one type of adjustment pressure to which regions are currently responding, the Commission has not limited its analysis to ‘mining regions’ or the effects of the mining investment boom. This is because the boom has had a widespread effect on Australia’s regions, and in some cases other pressures — such as changes in government policies, advances in technology, and the closure of major employers — have played a more important role in transitions in some regions. The analysis in this study includes all regions across Australia, and considers the many different forces that have shaped their development.

30.1.2 The Commission’s approach

The Commission’s approach to this study is one of many that could have been taken to address the terms of reference. Regions are complex, unique and dynamic systems, and the people within them are diverse. There is no single way to capture this diversity or to assess how each region might respond to change. In analysing the various approaches that could have been applied, the Commission settled on an approach that it considers best meets the requirements of the terms of reference.

In undertaking this study, the Commission has drawn on methodologies that have been used in the economic literature to measure economic resilience and adaptive capacity, and applied a framework with two key elements.

Observing change in Australia’s regions over time. This allows the Commission to identify regions facing transitional pressures, analyse their responses, and observe their development paths. From this, an understanding of the factors that influence economic resilience and adaptation can be reached and regions that might be at risk of failing to adjust can be identified. This analysis is the focus of chapter 3.

Constructing a measure of adaptive capacity. This is another way of identifying regions that might be at risk of failing to adjust, and is the focus of chapter 4.

The Commission has also devised a policy framework to assess the scope for economic and social development in regions and the factors that may inhibit or facilitate change in regions. The approach and guiding principles are discussed in chapter 2 and guidance on how the framework can be applied is provided in chapter 5.

Throughout the report, case studies have also been used to illustrate how factors have influenced the transition of regions. Not only do case studies provide useful insights into the factors that affect transition, but they also highlight the complex forces that shape the development of Australia’s regions. Regions that appear to have similar characteristics or levels of adaptive capacity may respond very differently to similar adjustment pressures.

As required by the terms of reference, the Commission has developed a single metric of the relative adaptive capacity of Australia’s regions. There are inherent difficulties in reducing the multidimensional nature of adaptive capacity into a single indicator. The metric obscures the uniqueness of regions, and its development has been limited by the availability of data across regions. That said, the metric provides a guide for identifying regions that might be at risk of failing to transition and adjust to pressures for change. The limitations of the metric are discussed in chapters 2 and 4.

31.1.3 Conduct of the study

The Commission has consulted widely with stakeholders, drawing on input from participants through meetings, visits, roundtable discussions, written submissions and public forums (appendix A).

The terms of reference for this study were received on 15 December 2016, and required the Commission to produce an initial report in April 2017. Given the short timeframe for the initial report, the Commission did not release an issues paper, however it did invite public submissions. Prior to the initial report, the Commission held limited consultations with a range of organisations, individuals, industry bodies and government agencies and visited a number of regions.

The Commission released an initial report on 21 April 2017. The initial report was informed by 37 initial submissions and included the Commission’s analysis and findings at that time. The Commission sought feedback on the initial report and held more extensive discussions with stakeholders. This included visits to regional areas of Australia, with public forums held in Karratha, Traralgon, Orange, Adelaide and Darwin in June and August 2017.

In total, 81 submissions were received (with 44 following the release of the initial report). Submissions are available on the Commission’s website.

The Productivity Commission thanks all participants for meeting with the Commissioners and staff, making submissions, and providing helpful information. The Commission would also like to thank the Australian Bureau of Statistics for hosting an inposted Commission staff member to access data, including from the 2016 Census, which was crucial to much of the analysis in the report.

2 The Commission’s approach

Key points

The regions considered in this study are not limited to those directly affected by the end of the mining investment boom. The study looks at all regions across Australia, and considers a variety of adjustment pressures that affect the economic performance of regional communities. Though regions are constantly changing and evolving, the catalyst for this study is major disruptions to regions’ economic circumstances. There are three key elements to the approach adopted for this study. The first is to observe change in regions over recent decades, and to use this information to understand how regions are transitioning and/or developing and to identify regions that might be having difficulty transitioning. The second is to create an index of the relative adaptive capacity of Australia’s regions. This index combines many attributes that are considered important in shaping the capacity of a region to adapt. The third is a framework to guide governments in assessing the scope for regional development and transition. Regions have differing natural growth potential, which changes over time. This potential defines the region both in its ability to grow, but also its ability to respond to external shocks. Successful (or unsuccessful) transitions are difficult to define, and can have differing effects on people. The focus ought to be on the wellbeing of people rather than regions, although this study uses data at a regional scale to assess transitions. Many factors influence the way regional communities (that is, workers, business owners and people living in the region) respond to economic, social and technological changes. Adaptive capacity is a summary of some of these factors. It is influenced by a broad range of attributes and resources that regional communities can draw on when considering how to respond to changing economic circumstances, including the skills of workers, connectivity to other regions and social factors such as leadership and networks. In general, regions with higher adaptive capacity have a relative abundance of these factors, and are relatively well placed to transition successfully after disruptions. However, adaptive capacity is not a good predictor of outcomes, because these reflect many decisions made by individuals and businesses, as well as the type and magnitude of the disruption. The ability of regional communities to adapt and develop depends on the opportunities available to them and on the extent of any impediments to taking advantage of opportunities. Institutions and leadership critically influence the way resources are mobilised and the way development strategies are devised and implemented. Assessing the scope for transition and development in regions should be guided by an examination of each region’s circumstances, the nature of the change it is experiencing, and its inherent strengths and advantages, as well as prospects for sustainable development.