Much of my working life has been spent on matters relating to structural change in the economy. It sounds pretty dry but in fact it’s full of human interest and also important. And it is a topic of great current importance to Australia.
My first job was on the Farm Amalgamation Research Project in England. (One had to speak very clearly when using the acronym.) It was a research study on the dynamics of the way in which farms were being amalgamated and what it meant for agricultural production.
In 1971 I joined a similar study at the University of New England, focused on the impact of the dramatic fall in the price of wool on land ownership and productivity in some of the woolgrowing regions in New South Wales and Western Australia. Were woolgrowers postponing productive expenditures, such as superphosphate or flock management, or were they able to tighten their belts sufficiently by reducing personal household or family expenditures? (You can guess the answer.)
And was it neighbours, corporate interests or new entrants to agriculture who were buying up woolgrowing country?
These are the sorts of human decisions that drive change in one of the leading elements of agriculture’s structure: the number of farms.
Some of their results are well-known. In 1981 there were about 263,00 farmers in Australia. In 2011 there were 157,000 – a reduction of 40 per cent. The number has been falling for many decades as small farmers find it hard to make a living and sell up to larger operators, and as some family farmers don’t have a successor.
The numbers do not fall evenly through time. Events like major droughts have a major impact. For example, there was a decline of 15 per cent in just 12 months during the 2002-03 drought. And by 2011 there were 19,700 fewer farmers in Australia than there had been in 2006, a fall of 11 per cent in five years.
This structural change in agriculture has some serious implications for the economic base of country towns; for the industry’s productivity and income; and for environmental sustainability.
Agriculture has been changing shape but is still a productive industry contributing substantially to the nation’s wellbeing.
A number of other industries have also experienced big structural changes, including meat processing, timber milling, textiles clothing and footwear, and motor vehicle manufacturing. Many towns in Australia that used to have abattoirs, timber mills or textile manufacturing businesses – and in which these were major employers – have had to adjust and find new industries or lose population.
The economist’s (rather dismal) prescription in these circumstances has usually been along the following lines.
Identify and scrutinise sectors experiencing rapid structural change, in terms of their ability to compete with global suppliers and so to be economically sustainable without government support in the longer term.
Remind everyone that Australia’s is a trade-exposed nation, whatever it produces, and that the free market is our economic friend.
Identify populations (groups in the workforce) and regions (particular towns, for example) that are bearing ‘an undue proportion’ of the costs of such structural change, and/or situations in which the speed of change is ‘unreasonable’. Judgements are involved!
Make a balanced decision about whether compensation should be paid in some form or other to those populations and/or regions in order to ease but not prevent the transition.
If it is decided that there should be ‘intervention in the free market’ that is driving structural change, propose the best sort of compensation, which might be income support (to industries or workers), retraining, relocation assistance or special safety net provisions, and how (and for how long) such compensation should be managed.
This has been the normal prescription for many decades now.
But is there a different medicine, a better approach?
Nick Xenophon may well be among those who thinks there is.
[ – to be continued – ]