Jan 30, 2013

What’s wrong with Tasmania, Australia’s freeloading state?

Tasmania lags the nation in all important economic and social criteria. In an essay for GriffithREVIEW, Jonathan West says a malaise has descended over the Apple Isle. Its industry is broken and its people fear change.

For most Tasmanians a darker reality lies behind the seductive tourism brochures showcasing the state's pristine wilderness, gourmet-magazine articles celebrating its burgeoning food culture, and newspaper stories gasping at a world-leading art museum. Tasmania ranks at the bottom among Australian states on virtually every dimension of economic, social, and cultural performance: highest unemployment, lowest incomes, languishing investment, lowest home prices, least educated, lowest literacy, most chronic disease, poorest longevity, most likely to smoke, greatest obesity, highest teenage pregnancy, highest petty crime, worst domestic violence. It seems not to matter which measure is chosen, Tasmania will likely finish last. Why Tasmania is such a long-term underperformer, and what might done to improve, are important questions -- not only for Tasmanians but also for the nation as a whole. In fact, it can be argued what's happening in Tasmania is not an exception but a microcosm for a major part of Australia; it is already typical of non-metropolitan regions and might represent more of Australia's future. One advantage in Tasmania, however, is that because it is both a "region" and a state, data and other information are available that allow us more clearly to see patterns that remain buried among bigger aggregates in other states, which elsewhere combine the big cities with non-urban regions into a comforting average. The underlying problem is simple but intractable: Tasmania has developed a way of life, a mode of doing things, a demographic, a culture and associated economy, that reproduces underachievement generation after generation. Everyone knows the problems; they are manifest, reported day after day. The reality is that Tasmania has bred a dominant social coalition that blocks most proposals to improve. Problems and challenges are debated endlessly, with no resolution. Most discussion avoids mention of the uncomfortable truths at the source of underperformance. Ultimately, Tasmania doesn't change because its people don't really want to. They don't need to change because their way of life is mainly financed by the mainland. Far from helping overcome this pattern, the nation’s resource-boom prosperity is enabling and cementing Tasmania's under-achievement. It’s allowing the government to pay an ever-expanding proportion of the population not to work; it’s driving up wages, materials, transport, regulation, exchange rates, and other costs that make Tasmania’s traditional industries uncompetitive; and it’s allowing government to subsidise non-performing industries. The result is that Tasmanians face little incentive or pressure to change. Unlike New Zealand, which has no rich big brother and must find ways to earn its own living, Tasmania enjoys a permanent and ongoing transfer from mainland cousins that reinforces failure. The difficulties are most obvious in the economy. Tasmania's unemployment rate in October 2012 stood at 7.7%, by comparison to the Australian average of 4.9% -- a difference of nearly three percentage points or, expressed more starkly, a rate of joblessness more than a third greater. In 2012, the poor performance of the Tasmanian economy was a dominant topic in local public discussion. It felt depressed. Traditional industries, particularly forestry and energy-intensive manufacturing based on hydro-electricity were in sharp decline, while tourism and service sectors were sluggish and appeared unable to pick up the slack. The fate of the forest-products industry was emblematic of Tasmania's challenges. Plunging global wood chip prices, rising Australian exchange rates, wages set by booming mining industries, tightening environmental regulation, and internationally effective campaigns by environmentalists, combined to lose customers in high-paying markets such as Japan and Europe and make the industry uncompetitive in growth markets such as China. The industry collapsed as revenue dived and costs spiralled. It had became increasingly uneconomic to harvest the trees, transport them for processing, transform them into sawn timber, plywood, or wood chips, freight them to markets and replant the harvested areas. It was estimated in 2012 that Tasmania would lose $50-100 per tonne on exported wood chips at prevailing world market prices, and the industry needed to export two million tonnes to break even. The state-owned entity that managed the public forests, Forestry Tasmania, was haemorrhaging cash, at the rate of an estimated $30 million a year.
"It is important to understand what it is about Tasmanian culture and society that permits such an abrogation of responsibility, a refusal to confront reality."
Forestry is only one example; other resource-dependent, processing-intensive, export-oriented industries suffered similar fates. The vegetable processing industry had all but disappeared and energy-intensive metal processing was in jeopardy. Clearly the forestry industry had reached a watershed, and would need to change, or perish. But the industry appeared unable, or unwilling, to change, and most. Tasmanian politicians’ response was to deny the need, blame the Greens, or delay the inevitable. The industry, strenuously backed by the Liberal Party and key Labor figures in Tasmania, essentially demanded the "right" to endless public subsidies. Any serious discussion of a new future for the industry was ruled out of bounds, for fear of offering succour to the conservation lobby. It is important to understand what it is about Tasmanian culture and society that permits such an abrogation of responsibility, a refusal to confront reality. The challenge is not that the scale of job loss is too great to be made up by growth in other sectors. Rather it relates to failure to take the action required to bring opportunities to reality, either in forestry or other areas. The economic problem Tasmania needs to address is not especially large. A common mainland misconception holds that Tasmania’s economy is ‘dominated’ by forestry. When questioned, respondents (including in Tasmania) estimate that it accounts for "about 20%" of Tasmania’s economy. This perception arises from the disproportionate share of media attention on environmental issues that swirl around forestry. But it’s not accurate; Tasmania’s economy is not forestry dependent. By 2012 just over 1% of jobs in Tasmania were in forestry, and even less depended on native-forest activity. Nevertheless, the shrinkage of the forestry sector poses important challenges for Tasmania. The best available data available revealed the Tasmanian forestry industry had shed about 3500 jobs between 2008 and 2011. With a full-time workforce of 153,000 in 2011, these jobs accounted for just over two percentage points of Tasmania's unemployment rate, or a third of the unemployed -- roughly the disparity between Tasmania’s unemployment rate and the mainland average. But two additional aspects of the forestry sector give it particular importance. First, the industry was concentrated in rural and non-metropolitan regions, which have historically had few alternative sources of non-government employment. Declining forestry jobs has eroded these communities' confidence. With mainland states booming in resource sectors, displaced Tasmanian workers left these communities, stripping them of some of the most economically productive and vibrant members. Forestry has also historically contributed a disproportionate share of Tasmania's tradable sector. The great majority of forest products are sold out of the state, a large proportion out of Australia. This is important because traded sectors tend to exercise greater leverage over the economy -- they can grow much faster because they tap larger markets and have higher "multipliers" of associated economic activity. One might imagine that responding to the decline of the forestry sector would be a high priority. An effective response would not be too difficult. The challenge posed by the decline of the forestry sector is essentially to accelerate economic development sufficiently to create about 3500 new jobs in sustainable industries, with an emphasis on the most affected regions. Success would overcome the damage inflicted on the Tasmanian economy by the decline of its forestry sector and align the unemployment rate with the rest of the nation. To be more ambitious, creating 10,000 new private sector jobs would inspire a boom in Tasmania, and essentially eliminate unemployment.BUT THERE ARE OPPORTUNITIES ... The evidence suggests opportunities abound in Tasmania. Economically speaking it should be easy to create these jobs. In fact, Tasmania enjoys natural and human-created advantages that offer sufficient potential to exceed these targets. But potential does not equal achievement, of course. Tasmania’s most important development and growth opportunities are not on track to meet these goals. All Tasmania’s main fields of opportunity are effectively blocked from realising their true potential. Growth has been curtailed so it cannot even compensate for employment losses stemming from forestry. How the blockages develop, and why they are not removed, is the important issue. But first the opportunities. My colleagues and I at the Australian Innovation Research Centre recently prepared a report for the Commonwealth Department of Regional Development that identified six main areas of opportunity: wine, dairy, aquaculture, horticulture, mining, and tourism, especially "experiential" tourism related to wilderness and the island’s gourmet products. Conceptually, good opportunities are those in which a community already has a demonstrated strength and path to greater capability, and which combine strong growth prospects with good wages and wealth-creation potential. It is obviously not desirable for any community to deepen reliance on sectors with low wages, low growth, and weak capabilities. A quick review reveals that even any one of these sectors alone would offer the potential to close Tasmania’s unemployment gap, if sufficiently harnessed. If Tasmania were to increase its share of Australia’s wine production, for example, from its present 0.5% to equal its share of Australia’s population (just over 2%), that increase alone would create more than 2000 jobs. Technically, such an increase should be straightforward. Tasmania enjoys probably the best climate in Australia for high-value wine production and its wine is in strong demand. Similarly, in the dairy industry -- with arguably the nation’s best natural conditions for milk production -- and horticulture, and aquaculture, production and employment could easily double. But while opportunity is abundant, actual growth is retarded. Two obstacles hold back development across all these sectors. First, all these opportunities involve close interaction with the natural environment ­-- demanding better use of land, water, and sunshine. But change in land use in Australia today almost always requires government approval, and in the context of bitter dispute over environmental issues, approval processes in Tasmania have become highly contested, politicised, and complex. As a result, approvals for new projects in Tasmania are more uncertain, risky, expensive, and lengthy than elsewhere -- and uncertainty, risk, expense, and length are all deterrents to new investment. Second, all the opportunities require mutual co-dependence between growers and processors and coordinated investment: grape-growers and winemakers; dairy farms and milk dryers or cheese plants; poppy growers and pharmaceutical manufacturers; tree growers, harvesters and forest-product producers; fish farms and seafood manufacturers. Expansion in growing requires expansion of processing, and vice-versa. But with different owners and divergent interests, growing and processing participants are often unwilling to commit ahead of each other, and development-throttling stand-offs ensue. Couple that with heightened suspicion between buyers and sellers, politics, and differential rates and forms of return, and what should take months, takes years; what should take years, takes decades.
"These are not problems with which 'market forces' can readily cope, or which private investors acting alone are like to overcome."
These are not problems with which "market forces" can readily cope, or which private investors acting alone are like to overcome. Government needs to co-ordinate and facilitate development or it doesn't happen. But in Tasmania, government tends not to act and the obstacles remain. I’ve become convinced that the underlying reason for this is that the Tasmanian community actually does not want government to overcome these obstacles -- or at least, it does not want it enough to sacrifice existing amenity for those obstacles to be removed. In Tasmania, we've arrived at a situation in which if any interest group regards itself as disadvantaged by a development proposal -- whether materially or in terms of its values -- there is insufficient weight on the pro-development side to push through resistance to change. The first source of this resistance is demographic. Only a minority of Tasmanian households derive their income from participation in the private sector, and few indeed are dependent on the portion of the private sector traded out of the state. The 2011 census revealed that over a third of Tasmanian households derived their sole or primary source of income from a Commonwealth government payment: old-age pension, disability, supporting parent, and, of course, unemployment. While the census does not record the proportion of households that derive their income from a government job, almost another third of the Tasmanian economy was made up of public services (health, education, welfare, administration, policing) and government business enterprises, which includes everything from the ports, railroads, shipping, buses, three electricity corporations, forestry establishment, maintenance, and harvesting, gambling, horse racing, motor-accident insurance, irrigation development, and management of tourist and cultural sites. On top of this, it is estimated that up to 10% work for a private corporation whose sole client is government: road construction, building maintenance, or outsourced government services in the welfare sector. These numbers suggest as little as a quarter to a third of Tasmanian households derive their livelihood from the genuine private sector. Of them perhaps a third gain their income from wholesale and retail trade and associated logistics, another third from residential and commercial construction and maintenance. The clients of both these groups depend largely on public-sector incomes, leaving only about 10% of all households making a living from the traded private sector. Tasmania can afford this lop-sided economy only because for every dollar Tasmanians contribute to the national tax kitty, they receive back $1.58 in benefits and services. WHEN CITIZENS DON'T HAVE AN ECONOMIC STAKE The implication of these statistics is that only a small minority of the Tasmanian population has a direct personal stake in economic development. While most might broadly favour economic development, they will not personally benefit from it. Not even the tax revenue that ultimately funds their government-derived income originates from Tasmania. Its security is not determined by the performance of the Tasmanian economy. Much more important is the far-away national economy, fuelled by the even-more-distant resource boom. Even without the boom, most government-backed incomes are regarded as solidly secure. When a particular economic development is proposed and would necessitate some inconvenience or clash with values, which most ultimately do, few Tasmanians have an immediate stake in making a compromise. Little is lost personally by opposing the development or delaying its introduction. If government attempts to expedite the proposal, a large number of Tasmanians will oppose such action as improper. Instances of inconvenience mentioned by opponents of particular projects include more trucks on the road, difficulty finding parking, lights on the horizon from off-shore aquaculture developments visible from the twice-yearly-visited holiday shack, spoiled views of natural features and, of course, environmental and humanitarian concerns. All are real concerns, but only a population whose income is independent of the performance of its private businesses will come to privilege such concerns, no matter how minor, above the need to earn a living. Such economic independence provides fertile ground for the widespread commitment to environmental values and Green politics displayed by the Tasmanian community. Perhaps most importantly, independence from the performance of the private economy provides a weak basis for constructing a constituency for a coherent and agreed economic development strategy. Progress is made only if no one disagrees. Demographics and income sources have coalesced to create a specific culture in Tasmania, or more accurately two cultures: a substantial "underclass" and the other of a smaller, comfortable, government-dependent middle class. The dark side of Tasmania’s enviable emphasis on a laid-back lifestyle is a culture of low aspiration, especially among the underclass. A recent study undertaken by an educational foundation unearthed the startling conclusion that a large proportion of Tasmanians specified not being educated as an important aspect of a "true Tasmanian", and even a good person. Educated people were regarded as "less Tasmanian", and probably worse people, not the sort with whom one would want to enjoy a beer: full of themselves, stuck up and less reliable. (In addition, some parents don't encourage their children to become educated for fear education would make them more likely to leave the island.) In other words, not only did education undermine many Tasmanians' sense of identity, which they greatly valued, and place them at risk of becoming separated from their community, but education was believed to make them less-likeable people. One upshot of this finding is that much policy aimed at encouraging young Tasmanians to become better educated was founded on the erroneous assumption Tasmanians would want to be better educated if only they could, and their failure to do so must be due to lack of economic means. All policies therefore aim mainly to reduce the economic burden of education. But if, as this research suggests, the targets of these programs actually believe that education is undesirable, the real focus ought to be cultural change -- which is never easy. Wages for unskilled labour, among the world’s highest, make the choice to be uneducated in Tasmania even more feasible and sustainable.
"In reality, that's what we see in Tasmania: supporting the underclass is an industry in itself."
The problem of the underclass is rarely discussed in Tasmania. It’s not even identified as such. We refer to the underclass as "disadvantaged", as though their circumstances were something imposed from outside, for which the "victims" bear no responsibility. The fact the Tasmanian underclass is white, not an ethnic minority, helps to make it less visible. Once the issue is defined as "disadvantage", policy tends to be directed towards providing more resources, to overcome the disadvantage. But if the source is ultimately cultural, providing more resources risks making the underclass’s under-achieving choices more feasible. The risk is that it reinforces and reproduces the problem. In reality, that's what we see in Tasmania: supporting the underclass is an industry in itself. The mayor of one town hit by the decline of the forestry industry suggested a refugee centre could be established in his district, which would offer the benefit of attracting more welfare services and boosting the local economy. For the middle class -- in Tasmania a much smaller group than elsewhere -- education was seen as desirable, but only to a point. Valued above most other concerns was a modest, comfortable lifestyle, the kind that steady government employment guarantees. The ease with which it had become possible in Tasmania to reach this income level and enjoy material security meant that there was little incentive for more education. The introduction of the goods and services tax and the wave of new tax finance provided to Tasmania had facilitated this culture by driving a mini-boom in the early 2000s as the state government added thousands of new public servants and sharply increased their wages, to reach "parity" with the mainland. Flow-on effects raised housing values and precipitated a retail-consumption spurt. The final source of blockage and failure to take advantage of opportunity is internal division. With prosperity seen to stem largely from government largesse, development in Tasmania is often regarded as a zero-sum game. If one sector or geographic region gains something, it is seen to come at the expense of someone (or somewhere) else. Hence, all opportunities are greeted with an outbreak of conflict over who should get what, usually between the northern and southern halves of the island. The mayor of Launceston famously stated it was more important to him that rival Hobart not be the site of any AFL games, for example, than that more were played in his own city. Challenging this self-reproducing pattern of failure has not proven easy. Because its origins lie so deep in the culture and population mix, change can probably come only from outside. Either the national taxpayer and federal government will declare "enough" -- though there's little sign of this -- or Tasmania will be altered by new arrivals seeking opportunity and a better lifestyle. Some voices within Tasmania do argue that a government-dependent way of life is not sustainable. They believe we can't go on and will be forced to change. But abundant government finance fuelled by the resources boom and a local demographic and culture that blocks change has rendered that untrue. The ultimate problem is not that Tasmania cannot afford its pattern of failure, but increasingly that it can. *Jonathan West is director of the Australian Innovation Research Centre and lives in Tasmania's Huon Valley. This essay is taken from quaterly journal GriffithREVIEW39, released this week.

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69 thoughts on “What’s wrong with Tasmania, Australia’s freeloading state?

  1. David Hand

    I’m shaken.
    We have an economic rationalist writing an erudite case for economic change in Tasmania in Crikey! What’s going on?

    Tasmania, land of the freeloader and home of the luddite.
    Australia’s only Green-run government.

    Tasmania where anyone with get-up-and-go, gets-up-and-goes.

  2. Phen

    Plus, worst of all – Ricky Ponting is from there.

  3. taz

    Having just returned to the ‘mainland’ to live after a two-year stint of residing in Hobart for personal reasons – something I was able to do as I run my own business and my clientele are based on the Australian mainland or overseas – I do not think Jonathan’s West’s comments are harsh. They are realistic. And he offers positive solutions to the state’s inbuilt inertia.
    His point about education particularly resonated with me. The state schools finish at Year 10. Students who wish to go on to Years 11 and 12 must go to various colleges set up in the cities to complete their education so that they can go to university. This immediately disadvantages students living in the impoverished rural areas who cannot afford to be educated in Town. No wonder kids are under-educated. The expectation that Year 10 is the end of formal schooling is reinforced in the local papers which publish endless photos of school formals for 15-year-olds.
    I attended school in Hobart at the time when the ‘matriculation colleges’ were being introduced. At the time it was thought to be a good thing as it provided a ‘segue’ between school and university. I thought it was a good idea then. It worked well for me, but I was in a demographic that suited it. As it was, as soon as I’d completed my matric (as it was known) I went to university on the mainland. Many people did. Many people still do, as Jonathan infers by saying “In addition, some parents don’t encourage their children to become educated for fear education would make them more likely to leave the island.” And many people don’t come back.
    I believe Tasmania is a wonderful place to live if you have an income and/or are employed. If you don’t you are shackled in all the ways the article mentions.
    I just hope that people can see beyond the article’s accurate assessment of Tasmania’s thinking, and take on the valuable suggestions he makes about how the state could improve itself.

  4. Chris Williams

    David (11) – you mean like David Walsh? The creator of MONA who the Monthly Magazine of July 2011 informs us was a “working-class boy from Hobart’s struggle-town suburb of Glenorchy.” http://www.themonthly.com.au/arts-letters-amanda-lohrey-high-priest-david-walsh-and-tasmania-s-museum-old-and-new-art-2918

    You mean that sort of get up and go?

  5. Jared Hill

    Amusing how defensive people have gotten reading this. Argue with Jonathan’s opinions as much as you like, the statistics speak for themselves.

    Tasmania lags behind on almost every statistic available, health, education, welfare dependence and social metrics, efficiency of government services, economic growth. The list goes on.

    Any proposal to effect change in Tasmania is always met with opposition, from any industry development (eco-tourism, residential, forestry, aquaculture, further hydro-industrialisation) through to redeveloping the waterfront for shared use, or to petty issues such as red awnings and heritage issues, or trying to replace a 30 year old concrete eyesore at 10 Murray St. Anything involving real estate development is exceedingly difficult. Any change proposed (Tas Tomorrow reforms, 4 school terms, amalgamating councils, rezoning land, reforming sewage/water) is met with violent opposition and almost always fails.

    Yes, we are over governed. 29 local councils and 2 houses of state parliament for 500k people. Yes there is a localism and regional “Nth vs NW vs Sth” mentality. But beyond the lethargy or psyche of the average Tasmanian, we also suffer from the same thing that affects Australia and most developed 1st world democratic countries – political leadership. Except in Tasmania it is more pronounced than elsewhere in Australia due to the smaller talent pool.

    These problems are inherently solvable, but there is no political vision, leadership or capacity to institute change. The stock we have of political leaders in Tasmania is depressing to say the least. No one has any real policy ambitions, and in the State Opposition’s case, no actual policy position. But it is almost not their fault, it is a result of the career opportunity in Tasmania and high achievers leaving for Melb, Syd or abroad. So it comes down to experience, and if you took out all the state politicians who were previously State sector employees, union officials or lawyers, there would be very few left with any outside experience to bring to the table.

    How do we solve these problems? Change will not occur that results in a negative impact on people, unless the alternative is worse. So unless the Feds threaten to significantly change the policy of horizontal fiscal equalisation, State government will not change, reform or evolve.

    There is a fundamental belief that Tasmanians are entitled to the standard of living, wages and social entitlements as “mainland” Australia, such as health, education, job opportunities and welfare.

    We are not, unless we equally contribute to earning and maintaining those benefits as a whole.

  6. WTF

    I’m lucky enough to live in Tasmania and even luckier that I do so by choice. This is spot on in so many ways it is frightening to read. Well done!

  7. Microseris

    DH “Australia’s only Green-run government”? Greens hold the balance of power much like the Lib Democrat’s do in the UK, so how exactly do they run the government?

    I suppose you would prefer a Liberal government like that of the dodgy and incompetent Robin Gray found to be deceitful and dishonest by a Royal Commission, or perhaps even Labor’s (Gunn’s can you do me a cheap reno) Paul Lennon?

  8. Chris Williams

    Jared (15)
    You really feel that Tasmanian leadership is so much worse than political leadership anywhere else? (I’m with Microseris (17) on this one.)

    I’m not going to argue that it might be marginally worse but it can’t possibly be so bad to account for Tasmania’s statistics.

    That’s why I think the problem is structural. Tasmania gets the largesse – and the outlook it has – because it has lots of political representation and therefore clout in Canberra. It is this political power which ‘dis-incentivises’ its productivity.

    This is why Tony Abbott can offer a local hospital there $1billion in order to buy government, and inefficient industries get propped up with massive subsidies.

    The Northern Territory, by comparison, might be getting huge payouts for supporting aboriginal communities but it is targeted assistance. By contrast with Tasmania there is little incentive on any federal political leader to try and massively buy off the NT because the handful of local politicians will rarely if ever constitute a significant block of numbers.

    Same as with the ACT’s four polticians. The ACT gets subsidised for the upkeep of the parliamentary triangle and a nod for the additional health and education costs it bears from people in surrounding NSW but otherwise its “go fend for yourself”, which creates the incentive to be leaner, more productive and occasionally innovative – no matter how bad the leadership might be! And believe me its been world-beatingly bad here in the ACT at times! (Having said that minority government has plans to lead us into another round of massive overspending – but this will be our debt problem not the rest of the nation’s problem)

    So I think the numbers do matter.

  9. Holden Back

    Summary of Chris Williams’ post: Brian Harradine.

  10. Jared Hill


    I agree, my comment about political leadership was less about blame for letting the status quo continue downwards, but there is no ability to drive structural reform to fix it.

    It would be interesting if Tasmania was hit by a new Abbott Government stick that effectively threatened the removal of horizontal fiscal equalisation by redistributing the GST on a per capita basis. I am not suggesting that wouldn’t be exceedingly bad for Tasmania in the short term, but as I said, people won’t accept hard decisions and adverse change unless the alternative is worse….

    There is no doubt the whole democratic system of pork barrelling exists. Howard was a master of it (Bass and Braddon in Tasmania’s north for instance have gold plated highways for a very small population, compared to Denison and Lyons in the mid and south of Tas which is the main highway), and middle class welfare nationally is another example. Trying to sway an electorate with a hospital in Devenport against all state planning and policy, which then got handed back to the state..another sad example.

    I agree, there is little incentive to change when there is a big bucket of money going to the consolidated revenue of State Government budgets.

    Although that said, I don’t agree there is much political clout in Tasmania. Maybe its been different the last 2 years under minority Fed government and Wilkie popping his head up every 2-3 months, but if Red or Blue had a large majority, Tasmania’s 5 seats would basically see us forgotten about on the Federal level. This issue is at a local level when any citizen can ring/email a local alderman or minister and get on their back, and these politicians are too concerned with dealing with petty issues rather than perhaps telling the individual their personal issues come second to the greater good of society?

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