Behind South Australia’s nuclear waste dump scheme: the dilemmas of provincial capitalism

SA Premier Jay Weatherill.
January 13, 2017

To most South Australians, Labor Premier Jay Weatherill’s plan for a vast outback dump to host imported high-level nuclear waste is dead, needing only a decent send-off.

Nevertheless, the Premier keeps trying to resurrect the scheme. Why?

Weatherill would presumably answer that the interests of South Australia demand fearlessness in seeking out new economic openings. “We are going to have to do some incredibly controversial things if we are going to turn South Australia around,” he told the ABC in 2015.

In an interview last September, as criticism of his dump scheme mounted, the Premier argued that his “courage” in tackling risky “reform” would eventually be rewarded at the ballot box.

We shall see. But there is no disputing that South Australia’s economy faces daunting prospects.

Decades ago, South Australia was an important centre of Australian manufacturing. Its vehicle and household appliance industries had been built up behind high national tariff barriers. Investors were attracted to the state by low wages offset by cheap, state-subsidised worker housing, while an undemanding labour movement ensured industrial peace.

Today, the tariff protection has almost vanished, and South Australia’s still low-wage costs are undercut by much lower ones abroad. Producing mostly for relatively small Australian markets, the state’s manufacturing has withered as firms have abandoned the field, or shifted to regions and countries where markets are larger and potential profits higher.

Between 1991 and 2015, South Australia’s manufacturing workforce fell from 109,000 to 72,000. The sole surviving vehicle complex, the General Motors-Holden plant at Elizabeth in Adelaide’s northern suburbs, is to close later this year, with likely job cuts across the company and its supply chain estimated at 13,000. At Whyalla in the northern Spencer Gulf region, the Arrium steel plant is in receivership, awaiting a buyer that may never come.

For many other players in the state’s economy, the decline of manufacturing has proved contagious. As noted by Richard Blandy, Adjunct Professor of Economics at the University of South Australia, there were 15,000 fewer full-time jobs in the state in 2016 than there were five years earlier. Economic growth was tracking at barely half the rate for Australia as a whole.

So there is no denying Weatherill’s argument that bold new strategies are required. What might these be?

Neo-classical version

Blandy has played a leading part in this debate. Respected by Adelaide progressives for his exposure of the flawed calculations behind the nuclear dump scheme, the professor is at the same time a conventional neo-classical economist.

This shows up clearly in his general discussion of South Australia’s economic dilemma. “The requirement is to increase the private sector’s prospects of making — and retaining — profits,” Blandy said in a 2014 In Business article. “If this happens, businesses will invest more.

“Greater investment leads to greater economic output, greater employment, and faster economic growth. Hence, first, the government should cut the private sector’s costs by cutting business taxes, cutting red and green tape, and deregulating the labour market so wage costs can be reduced and labour productivity increased.”

“Unproductive” government spending, Blandy argues, should be ended, allowing government debt reduction and eventually, balanced budgets.

Somewhat less orthodox — though still very much within the neoliberal framework — are some of his more specific recommendations.

Blandy argues that South Australia’s old economic thinking, based around large-scale industrial undertakings, should be jettisoned in favour of a new model attuned to a globalised age. Rather than attempting to preserve large, established firms (“net job destroyers”), the government should focus on supporting innovation and start-ups (“net job creators”), while encouraging the expansion of small businesses.

Building on the science and technology base represented by the state’s universities, these start-ups would reach outside the national market, supplying global needs for specialised, high-value goods and services.

Underpinning this model would be close links with dynamic Asian businesses: “The government should market Adelaide’s global liveability to Asian countries, to attract the highly skilled design, research and development and marketing teams of Asian global businesses to set up these elements of their global supply chains in Adelaide.”

Profits and wages, Blandy confidently asserts, would be high. The number of extra jobs “would be in the hundreds of thousands”.

All that is required is the political will to cut wages and slash taxes and government regulation.

The low wages, for many workers not on national awards, are already in place. As the Labor state government boasts, labour costs in South Australia at the end of 2015 were 11% below the Australian average. Meanwhile, the government plans tax cuts over the next few years that aim to make South Australia “the lowest taxing state in Australia for business”.

The low wages of workers, however, are simultaneously the weak customer base that restrains small local enterprises. The tax cuts, as well as being reflected in direct job losses, will bring low infrastructure spending and deteriorating government services; enough to make young, skilled, mobile workers — the people businesses need for profitable operation — head interstate.

And would the gains to business from tax cuts show up as higher productive investment? Given the generally dim business prospects, they might well feed increased property speculation.

Globalisation

What about the vision of knowledge-intensive start-ups reviving the state’s economy through exporting to interstate and international markets? A massive problem here is that even in a globalised age, geography still counts.

A much-cited example of a run-down industrial city “reinventing” itself through hi-tech start-ups is Pittsburgh, US. But Pittsburgh is less than half a day’s drive from tens of millions of people, along with their consumer demand. A half-day’s drive from Adelaide gets you to the Victorian wheatlands.

Might Asian manufacturers find South Australia an appealing site for their knowledge-intensive, high-paying design and research and development functions, as Blandy suggests? Already, the state has an impressive cluster of high-tech industries, with the associated workforce, technical services and university back-up.

The trouble is that this “cluster” is associated with South Australia’s status as “Australia’s defence hub”. Entry to the cluster is granted delightedly to US and European weapons’ corporations. Chinese firms, however, are kept out.

More fundamentally, inducements for Asian manufacturers to hive off their high-tech functions to countries like Australia have essentially evaporated. Indonesia now graduates highly qualified engineers in numbers much larger than Australia. For industry-related research, the universities of Shanghai are far more renowned than those of Adelaide. And as globalised firms have now discovered, siting knowledge-intensive functions remote from manufacturing limits opportunities for valuable feedbacks.

Modern capitalism, of course, is not only globalised, but increasingly financialised. Often without especially wanting it, developed countries have entered the post-industrial epoch. They maintain their privileged status not by making things — or even, to an increasing degree, by monopolising the knowledge-intensive, high-profit functions required for making them — but by controlling global financial flows. This enables them to cream off large portions of the value created by workers in the developing world.

Weatherill’s government looks for openings in this area, and plugs Adelaide vigorously as “a highly attractive, profitable location for financial and business services operations”. But here too, geography counts.

Of all economic sectors, financial and insurance activities show one of the highest levels of geographical concentration. This is because they depend on specialised technical and legal services, which are more accessible and yield greater competitive advantages when shared in strong local clusters. In the world’s financial districts, as in so much of capitalism, bigness begets profits, starving out lesser centres and leading to still greater bigness.

In Australia, the winners are Sydney and to a lesser extent, Melbourne. Cities like Adelaide are nowhere.

Well, there’s wine…

What’s left for South Australia? Well, there’s wine, though global warming, bringing higher temperatures and water shortages, threatens the longer-term prospects.

There’s also mining. South Australia is larger than France and Germany combined, and geologically is still relatively little explored. But major mineral discoveries no longer transform economies as they once did. Even large ore bodies are now torn from the earth in the space of a few years, using relatively tiny workforces. The profits accrue to firms whose headquarters, very often, are not even in the same country.

What else does South Australia have that might be turned into new export industries and jobs growth? One thinks of the state’s huge and diverse renewable energy potential. Adelaide’s bourgeoisie, however, lacks the flair of its Danish counterpart that won a leading global position in wind technology despite having few obvious resources apart from imagination.

That does not mean, however, that the solution lies in developing better capitalists.

The source of South Australia’s dilemma is the fact that the state has been sidelined by forces at the heart of modern capitalism itself. Only a fundamental break with the system and the instituting of a rational, planned economy, can provide real answers.

It was, perhaps, a dim recognition of this truth that drove Weatherill to the wild throw of the political dice represented by his nuclear dump scheme.

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