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"Strangers in the Night" - Some perspectives on regional Australia & the potential of clusters

Rod Brown

Australian Project Developments Pty Ltd PO Box 1145 WODEN A.C.T.
Phone/fax 02 - 6231 7261 Email apd@orac.net.au

Third National Conference Sustainable Economic Growth for Regional Australia (SEGRA) Sunshine Coast, Queensland

15 September 1999

Introduction

Frank Sinatra's lyrics live on in rural and remote Australia ….."Strangers in the night, exchanging glances, wondering what were the chances..…"

This paper argues that regional Australia, because of spatial and related issues, is constrained in making enduring connections with key external agencies.

While rural and remote regions have occasional engagement with institutional investors, politicians and well-meaning task forces, the linkages break down, people forget, agendas change, feedback peters out…..the result is the "Stranger in the Night" syndrome.

We will look more closely at this problem in the first part of this paper. The second part explains how cluster agendas fit in.

Part 1 - The "Stranger in the Night" syndrome

I base my observations on my 25 years experience in Commonwealth industry and regional development portfolios, as a policy analyst at the OECD, and more recently as a consultant in regional and industry development.

I believe that there are three fundamental characteristics that underpin the problems of regional Australia. They are not new, and have been touched on by others. However unless they are kept in mind, certain regional communities will be permanently consigned to Stranger in the Night status. The characteristics are:

Insufficient critical mass in terms of world-class, dynamic companies that are capable of competing and collaborating with each other.

The lack of a strong strategic focus, and 'distinctiveness', at the local level.

3. The political and administrative difficulties posed by our three-tier system of

government.

I will expand on each of these points during the course of this paper, and offer some examples.

Problem No. 1 - Insufficient Critical Mass

First, let's consider the No. 1 characteristic - the lack of critical mass.

Proximity to physical infrastructure and people still matters despite the Internet, instantaneous access to information, and global markets. Certainly there are examples of smart, innovative companies operating successfully in strange places. But the overwhelming fact of life is that critical mass - in other words, sufficient numbers of players, particularly consumers that can be "captured" in a market and/or geographical setting - continues to be the single most important signal to investors.

This is not my view alone. It is shared by the Australian Council for Infrastructure Development (AusCID) and institutional investors such as the AMP, Commonwealth Bank, Macquarie Bank, and the NAB who worked with my company during 1997/98 in dissecting 68 regional investment proposals across Australia. We looked at water treatment plants, transport hubs, power stations, health resorts, airports, port developments, forestry plantations, marinas, gas and water pipelines.

The rationale of the exercise - supported by the Commonwealth and most of the State and Territory governments - was to determine the conditions under which institutional investors can play a greater role in the development of Australia's regions. This is a critically important question given that the bulk of our national savings are now with the banks and super funds, and not governments.

The recurring explanation put to regional project proponents by the institutional investors was that robust revenue streams are required to attract their interest. If the proposed investment is in infrastructure, financiers look for sufficient users of that infrastructure. If the proposed investment is a business venture, the quality of hard and soft infrastructure will often be a major consideration.

However, many regional markets often lack critical mass and sufficient quality infrastructure, and the two are inextricably linked. As a Melbourne-based ANZ executive frankly explained when he returned to his hometown of Ballarat:

"Economies of scale are the key….the cities have it….there seems to be a stigma on the rural sector which somehow must be overcome if the confidence of investors is to be gained."

Agglomeration effects - governments do contribute

The Commonwealth and State government decisions can exacerbate the problem of scale, specifically the lack of it.

Why is this so? The best way of explaining this is by linking three strands of earlier research:

• Forty years ago, Hirschman (1958) showed that externalities are generated via the linkages between firms, and via the linkages between these firms and the general level of physical infrastructure in a country and/or region.
• Others such as Stern (1991), Barro (1991), the Kelty Task Force (1993) and McKinsey & Co. (1994) have built on this by arguing that 'social infrastructure' - schools, universities, hospitals, management structures etc. - is also a significant determinant of growth. The corollary of this is that governments, as the traditional providers of public assets of this type, are key players.
• Krugman (1991) then overlays this by noting that investors decide where to locate, or what products to invest in, on the basis of previous decisions of others. The determinants of these previous decisions are largely irrelevant to potential investors - what matters is that the physical and social infrastructure is in place. Krugman goes on to argue that firms tend to cluster around successful, already-established or larger firms. This agglomeration of firms generates externalities that, in turn, reinforce and realise the investor's initial expectations.

My strong suspicion is that these effects are well entrenched in the Australian economy. Agglomeration effects are driving economic and political decisions, and those locations with the quality infrastructure benefit from series of reinforcing actions from consumers and investors. The areas so "bestowed" grow like ice crystals, as a result of the following realities:

Investors are attracted by the quantum of potential customers in the bigger cities - thus conferring ongoing advantages for Melbourne and Sydney over Adelaide, Brisbane, Perth etc.

Investors are attracted by quality public infrastructure - this reinforces the relative attractiveness of the capital cities vis-à-vis other centres within the State. (See C)

Investors are attracted by the opportunity to link projects as a means of generating cost savings and revenue growth.

Politicians are attracted to invest in public infrastructure that favours the maximum number of taxpayers - this is illustrated by the massive expenditure in transport, tourism and sports infrastructure underway in Sydney and Melbourne. (See A and B)

School leavers in rural areas are attracted by the jobs and lifestyle on offer in the capital cities (See A, B and D)

Example - Bunbury WA

As an example of C. above, Bunbury has numerous projects that are inextricably linked - the proposed container facility at the port, the expansion of Kemerton Industrial Park, the construction of the Kemerton power station, the major gas pipeline, and various mineral and timber value-adding projects. However, while the WA Government and investors understand these interrelationships, the 'coming together' of the whole is proving to be a lengthy and difficult process.

Wider industrial policy implications

The lack of critical mass is also a factor underpinning our efforts to build a dynamic industrial economy in Australia. The effects of the problem can be seen in our very modest track record to commercialise research and development in this country.

Likewise, our continuing Current Account Deficit is, I believe, linked to the lack of critical mass in manufacturing, the low level of resource processing, and entrenched structural weaknesses. Our CAD rarely raises concern among economic commentators. The latest spin is that our merchandise exports have fallen because of the Asian crisis. If one went back through the Treasurer's press releases over the last 15-20 years, you'd find a treasure trove of excuses - the need for import of capital equipment to maintain our industrial competitiveness, one-off purchases of Qantas jets, the re-equipment needs of the Defence Department, the impact of droughts on grain exports………the list goes on and on. I will return to this later.

Problem No. 2 - Lack of Focus and Distinctiveness

The second main characteristic of regional Australia is the lack of focus and distinctiveness exhibited by regions.

This is not a criticism of the hard work of the local people in these areas - but everything points to rural and regional areas needing to play to their inherent strengths more. By doing this, they would increase their competitiveness as an investment location while also increasing the chances of winning government program support.

Example - Killarney Whiskey

• In 1997, we looked at a project involving the building of a distillery for the production of an Australian Irish-style whiskey at Killarney, in the McPherson Ranges outside Warwick (Qld). The area’s soft Irish appearance, the Irish roots of the locals, and the use of Darling Downs grain are distinctive features.
• My latest information is that the stakeholders, who are local farmers concerned at low farm incomes, were considering two ownership structures. They are working together via the Eastern Downs Turnaround Group (EDTG). There is the possibility of equity participation by a European distillery group.
• The proponents are looking at the premium end of the market, keeping it at a small scale and gradually building up from there.
• This project could be a potential beauty. We suggested that a full-scale feasibility study is required, and DEDT was assisting with some funding in this regard. If it can be commercially viable, it should generate wider economic and social benefits in the region, given that it could strengthen the tourism and value-added agriculture industries. The institutional investors were impressed by the fact that this project is about self-help and playing to competitive strengths.

Much of the McKinsey and OECD thinking is about regional communities needing to find their own niches, and to develop distinctive capabilities around these niches. To do this, project proponents need to think outside the square, be very insistent and be outcomes-focussed. At the other extreme, Melbourne doesn't have to do anything very innovative or extraordinary to maintain its standing as the pop music and TV centre of Australia. This is because it achieved take-off in the 1960s and 70s due to a series of triggers - and its critical mass and international reputation now feeds further growth.

Project champions v project drivers

Geoff Pryor, another Canberra-based consultant with whom I do clustering analyses, goes a step further. He argues that one must distinguish between project champions (who may also be the proponents) and the project drivers - the former are obviously important, but the latter are critical because they keep plugging away, making the connections, doing the myriad of small things to maintain the required focus. Some project champions also play the project driver role, but they are often busy on other fronts. While government officials may perform both roles, they can be very effective project drivers because of their access to information and networking opportunities.

Projects too small

Part of the problem is that the investments in regional Australia tend to be small. Projects of less than $20 million are not attractive to institutional investors - they will remain orphans unless they can be bundled into bigger projects. The big investors are still mainly focussed on the big projects, and will remain so until the privatisation process has run its course in respect of airports, power and water, pipelines etc.

There is significant potential to bundle projects, and thereby enhance business opportunities for energy and telecommunications utilities and others. However, there are not many good examples where this has been achieved, mainly because of the lack of a pan regional focus. WA is arguably showing the lead, with Queensland in second place.

Lateral thinking & flexibility

The need to think outside the square stems from the fact that of the 68 projects we analysed, possibly half suffered delays of some sort due to a lack of lateral thinking and/or flexibility on the part of a key player. In some cases, the misreading of signals/feedback from some agencies has put potentially viable projects into mothballs.

Example - A Highway that's a Strength and a Weakness

I recently assisted a local council in NSW in developing some development agendas. The town in question has been doing an impersonation, for two decades, of a blow fly in its death throes.

Anyway, the townsfolk decided to take some proactive steps to grow its economy, by:

• concluding that the town's distinctive feature and major strength is its location at the intersection of two major highways
• agreeing that the heavy vehicle traffic was the biggest constraint to the town and its future growth
• commencing discussions for a mandatory by-pass for heavy vehicles, while still encouraging passenger vehicle so as not to affect the town's motel businesses (ie. a distinctive feature, and not the normal by-pass model).

The advice from one government official was threefold - bypasses cannot be made mandatory unless there is a load-limit issue; it would require Ministerial approval at the State level; and, lobbying to the Commonwealth Government would be necessary because the Commonwealth (and not the State) would need to fund it.

The government official was doing his job of explaining the hoops to be jumped through - fortunately the local players are outcomes-focussed and the advice has served as a reference point for required action.

Overseas visitors sometimes refer to a lack of distinctiveness in regional Australia. Perhaps they have a point, and on reflection one can recognise:

• a sameness of small town streetscapes, and indifference to buildings of architectural merit. Exceptions would be Gladstone (Qld), Chiltern/Beechworth (Vic), Strathalbyn (SA) and Hobart.
• a lack of industry specialisation in small regional communities, reflected in the preponderance of businesses servicing the local market viz. agricultural machinery suppliers, car dealers, TV and electrical suppliers, bread shops etc.
• a lack of industry specialisation even within the larger regional cities. In places like Albury/Wodonga, Bathurst/Orange, Geelong and Ballarat, and the coastal cities in Queensland, there are substantial opportunities for further industrial specialisation.
• intense competition between local councils and development agencies for footloose investors, regardless of whether the locality has the factor endowments to suit the intended investment.

I believe that the concept of industrial precincts (that embrace clustering concepts) can help address the lack of distinctiveness of regional communities, and we will return to this in the second part of this paper.

Problem No. 3 - Political & Administrative Difficulties

Australia's regions are often the epicentre of political agendas, and one often hears the lament that "if only we were in a marginal seat, the government would take an interest in us"

Public interest

Based on our examination of scores of projects, we estimate that around 40 per cent of infrastructure and related projects in non-metropolitan areas have some degree of ‘public interest’ in them - this means that a government decision or some form of government financial involvement is required to advance them. Indeed, institutional investors expect a government agency to cover the public interest portion of a project - they argue that they should not be paying the government’s way, nor carrying that additional risk.

Example 4 - Sydney-Canberra High Speed Train

This is a classic regional project embroiled in Commonwealth-State and local government politics. It has significant public benefits - reduced pollution and congestion for Sydney, increased road safety and urban amenity for the whole corridor, and huge regional employment benefits. However these benefits accrue to the public, and do not improve the investor's bottom line. The economics of this project simply do not add up in my view - unless investors are seduced by a rush of patriotism (extremely unlikely) the project cannot happen unless certain parties adopt a more realistic view of the public benefits of this project.

I suspect, but cannot presently validate, that the public interest ratio is higher in the Bush than in the major cities. In a sense, it is irrelevant - the problem is that certain regions need to play catch-up. Unfortunately, we are not well-served with data on the quality or quantity of hard and soft infrastructure in regions. The ABS still does not collect any such data, despite the best efforts of my former work colleague Murray Geddes and others.

Institutional investors are very wary of some regional projects lest they are, or might become, political footballs. The big investors need to be assured that the greens, local government councillors, politicians, and bureaucrats have at least found some common ground. Institutional investors will stick around and keep their options open (at little cost) for big projects - as in the case of the Sydney-Canberra high speed train - but smaller (say $5-20m) projects tend to be passed over.

The smaller projects may however receive a boost if they are in marginal electorates at election time - little wonder that cynicism abounds.

Government Grants - some unintended consequences

While government grants can be critically important in addressing public interests elements, there are some downsides due to the following:

• the Commonwealth Government continues to have a very high level of program funding in certain fields.
• A hand to mouth culture has developed. It manifests itself in local players spending considerable time applying for grants and then waiting for lengthy periods (often 6-8 months) for a blessing from Canberra. A raffle ticket mentality has emerged.
• On average, I estimate that the success rate for applicants to the bulk of the Commonwealth programs is around 12-15% - which means that 85% of the punters have bought a losing raffle ticket.
• The ever-increasing accountability requirements of these programs means that they can only be expended within tightly defined limits. This has led to a series of "stove pipes", whereby funds flow down these pipes, but cannot be modified.
• The situation is currently quite rosy if funds are sought for Clean Seas, Bush Care, IT incubators, telecoms in general, certain R&D grants…… but the situation is extremely competitive and rather 'whimsical' in respect of regional tourism infrastructure, rural planning assistance, agrifood….and if your requirements are outside these areas, do not get excited.

In my opinion, the situation has gotten out of hand. Instead of launching into enquiries of political favouritism regarding Federation Fund projects, federal politicians would serve their constituents better by devising a more effective method for delivering public funds. Among the options that should be considered are:

• A radical shift of funding from the Commonwealth to State and local government (in the context of the GST revenue sharing arrangements)
• The possibility of regional budgets, based on regional infrastructure audits.
• A more inclusive and much faster system of grant decision-making.

It should be noted that the SA Regional Development Task Force has recently recommended that the Commonwealth transfer its responsibility for funding local government to State governments, and that the issue should be put on the COAG agenda. The Task Force noted however that 'some representatives have expressed apprehension regarding this proposal'. This is presumably linked to the concern that local government would remain as the weak link, and even more 'under the States' thumb'.

Regional budgets and a concomitant upgrading of skills at local government level would be the better option, together with a strengthening of ALGA's presence in Canberra in order to improve local government's interface with the Commonwealth.

Risk

Many rural (and urban) projects hit the proverbial ‘brick wall’ because of the inability to influence or control risk viz. construction risk, operating risk, revenue/demand risk, and regulatory (policy) risk.

There are also the qualitative aspects. For example, the ‘gut feel’ of investors in terms of future government policies can consign good cash flow projections to the rubbish bin. Governments do not always appreciate the impact that their decisions (or lack of them) can have on investor confidence.

The key point is that, unless the interdependence of projects and infrastructure is reflected in the criteria for government funding programs, many regional projects will be hamstrung or at least unnecessarily delayed.

Part 2 - The Potential of Clusters

Part 1 referred to problem areas associated with getting investments off the ground in regional Australia - lack of critical mass and robust revenue streams, the tendency towards smaller and interconnected projects, difficulties in keeping agendas moving forward, public interest and politics, and the mismatch between government programs and real needs. Since wealth creation and jobs cannot happen without investment, these problem areas must be better understood and addressed.

The significance of clustering agendas is that they dove-tail into many of the above issues.

What is an Industry Cluster?

First, a simple definition:

The tendency for like-minded firms and talent to cluster in specific geographic areas. They do so to achieve synergy, facilitate business transactions and utilise hard and soft infrastructure.

A cluster is really an advanced stage of a network, because it incorporates infrastructure and government issues. Network agendas tend to focus on linking groups of sme's. (Value chains are an advance on networks, but fall short of a true cluster agenda).

Example - Scone equine cluster.

Some 70% of Australia's thoroughbred foals are born around Scone in the Hunter Valley. The area has world-class infrastructure - race track, training tracks, equine research centre, convention centre, TAFE, and easy access to Newcastle and Sydney. The triggers were decades ago, with the vision and funding of local councillors and breeders. More recently, funding from State coffers and the Commonwealth filled in the infrastructure gaps. Now veterinary groups, feed suppliers, major local and Arab breeders/investors, hobby breeders and trainers variously compete and collaborate in a dynamic environment.

Example - Torquay

Torquay, 20 minutes drive south of Geelong, is now a world-class centre for surfwear. The trigger was a couple of surfers in the late 1960s who decided it was the place to start making surfboards. They began their enterprise in an old garage, expanded with a business grant from the Victorian Government, and eventually split into two competing companies - Quiksilver and Rip Curl. Then Oakley sunglasses located there, as did numerous parts suppliers. Various hard and soft infrastructure investments have sustained the growth of this cluster.

Another example of clustering effects are in food processing around Shepparton ……and there is, I believe, considerable clustering potential at places like Young (exotic fruit, processed food), Gladstone (minerals processing), Newcastle (Information Technology), Canberra-Queanbeyan (Advanced Technology), Bermagui-Eden (fishing equipment), and Albury (environmental monitoring/sensing equipment) to name a few.

Better understanding Cluster agendas

The clustering phenomenon can facilitate sustainable economic growth in three ways, based on three types of clustering agendas (which incidentally is the source of much of the confusion about the term).

The Passive agenda

The passive agenda mainly involves an appreciation of the cluster phenomenon. It is intuitively understood by investors, real estate agents and politicians. And long-graduated economics or geography students may have a hazy recollection of the issue.

Most of us know that the seeds of a cluster can be sown by an investment in a piece of infrastructure, a government decision, a new technology, or a chance happening. Early commercial success leads to the entry of other players keen to be part of the action. This in turn feeds revenue streams to justify more infrastructure.

The Measurement agenda

The measurement agenda is the province of the academics and various regional development practitioners. Brian Roberts (Queensland Univ.), Roy Green (Newcastle Univ.) and Roy Powell (Armidale Univ.) are three leading exponents of this agenda. They also get involved in the Action Agenda aspect.

It involves detailed studies of the phenomenon, usually at the local level, in order to understand linkages and economic relationships, and to generate the hard data to support an argument or proposal. This agenda involves investment and employment multipliers, input-output tables, infrastructure audits etc.

The worth of this agenda is that explains the dynamics of a region or industry within a regional setting. The material can be of particular use to investors and governments - however, in my experience, the problem lies in getting the information into the right hands at the right time.

The Action Agenda

The Action Agenda involves building on the work of others, and essentially running an agenda. In this regard, clustering is a process built around harnessing collaborative instincts and driving towards economic and social outcomes. The Silicon Valley/Doug Henton cluster agenda is of this type, and the South Australian cluster agenda is based on the Henton model. The South Australians are probably two years ahead of the rest in Australia.

Other examples can be found in the Hunter region (Michael Murray, as well as Roy Green, Neil Sinclair etc.) and the Cairns region (John Dean et al). The New Zealand agenda was a bit ahead of Australia at last count, and their champion is with us today - Ifor Focs Williams from windy Wellington.

The Action Agenda aspect of clustering is the hard slog. It involves an intensive effort to address the problem areas identified in the first part of my paper - the harnessing of goodwill, making connections, aggregating demand, attracting investors, coordinating the actions of a myriad of players.

My company specialises in these agendas, particularly:

• providing strategic advice to institutional investors, councils, state agencies and regional organisations
• preparing outcomes-oriented Action Agendas for uptake by cluster groups, working parties etc.
• accessing public and private sector funding, based on our contacts and first-hand knowledge of government programs.

We also assist Council and regional development organisation staff in their day to day tasks of coordinating and cajoling the different interest groups - this is one of the most demanding and under-appreciated tasks known to mankind. The many examples of frustration, burn-out and back-stabbing of regional development practitioners are testimony to this, and I respect their efforts.

State Government interest

I have been asked to explain the level of support among the State governments. In brief, I would say that both the State and Commonwealth industry policy settings are conducive to the growth of clusters to the extent that they are addressing micro-economic reform, including the freeing up of capital and labour markets, export orientation, innovation and management skills.

As previously mentioned, the SA Government, through Mick O'Neill (DIT), John Caporn (SA Water) and others, has nurtured the establishment of network alliances and cluster agendas in key industries - defence, water, spatial information, and recreation and sport. A fifth cluster in international tourism is getting underway. I have further information available, plus contact details.

The Queensland Government is becoming active in this area, and I can furnish a separate paper for those interested.

The NSW Government has in-house expertise (eg. Paul Collitts, State & Regional Development) and its brochures refer to the "provision of information to potential investors about clusters being formed in particular industries", and of the need 'to identify impediments to the development of industry clusters". My company is doing work for two councils in NSW, in respect of a transport hub/cluster and a fishing precinct/cluster.

The Victorian Government, in similar fashion to NSW discusses cluster development in its business assistance brochures, and my discussions with various State officials confirm their interest in the development of industry clusters. The Rural & Regional Strategy agenda promulgated over the last two years by Business Victoria, DNRE and the Department of Infrastructure had a specific cluster element. The feedback has been that the cluster agenda has not quite developed as envisaged, and I suspect the reasons are similar to those identified in the final part of this paper.

In WA, the Department of Commerce & Trade (Chris Fitzhardinge et al), takes an interest in clustering issues. I am not aware of a specific cluster program, but various initiatives have clustering aspects eg. Jervoise Bay marine precinct.

The ACT Chief Minister's Department recently joined forces with the ACC to fund my company and Pryor Knowledge (ACT) to develop a cluster agenda for the Capital Region's environment industry. The strategies we developed are now in the process of implementation. Further work in respect of advanced technology is a possibility.

Commonwealth interest

At the Commonwealth level, the major emphasis is on the pursuit of sound macroeconomic conditions and microeconomic reforms, and the DISR programs are mostly framed around innovation, investment and exports. DTRS also has a micro-reform emphasis, major transport infrastructure agendas, as well as a quiet re-entry into regional issues via the Rural Plan and Rural Transaction Centres programs. The third Department is AFFA, which has programs that have specific locational aspects, such as the Forestry Industry Structural Adjustment Package (FISAP). DOCITA and Environment Australia are also relevant.

These five agencies thus have pockets of programs that can be accessed for clustering activities. However, there is general indifference and ignorance of cluster concepts as such. This is, I think, mainly due to lack of information and models that could be examined. Other reasons appear to be the emphasis on microeconomic reform (especially in DISR), and a subliminal feeling that the States are there to deal with the bulk of the locational-specific industry development. I have also detected a view in some agencies that cluster agendas are "picking winners".

This is very unfortunate because cluster agendas could provide substantial assistance to the Commonwealth Government in addressing its innovation and investment goals, as well as those of regional Australia. I will expand.

Innovation Summit

The Prime Minister's recent call for Australia to be a 'can do' country, in order to capitalise on its inventiveness, is a lead-up to the Innovation Summit in February 2000. Underpinning the PM's interest is the Government's increasing disquiet about the fall-off in business R&D expenditure and our very modest record in commercialising its innovations.

The Innovation Summit is expected to involve 500 participants, on an invitation only basis. The aims of the Summit are to essentially to look for a consensus on strategies to stimulate innovation and improve its commercialisation. It will attempt to determine what each key group - researchers, manufacturers, institutional investors, governments - can best contribute.

A Commmonwealth official explained as follows….."the problem at the moment is one of linkages. The research community doesn't know what industry wants - likewise the corporate world does not have a feel for research. What can be done to improve linkages? Should we be looking to establish a critical mass thing?"

There is thus a real window of opportunity to examine how clustering concepts might be brought into mainstream science and industry policy thinking. Silicon Valley continues to grow due to clustering effects. There is potential to build clusters of research and commercial capability in every State and Territory, and perhaps the classic example is right under the nose of the Commonwealth Government.

Example - Advanced Technology (AT) in Canberra

The Good News

• Numerous significant Cooperative Research Centres, CSIRO divisions and university faculties are located here.
• In excess of 200 technology-intensive SMEs are located in Canberra-Queanbeyan. The R&D credentials and ideas have been gained through their employees' previous careers in public sector agencies.
• Global players such as Anutech, ACTEW and SMEC have some export focus, and offer substantial scope for partnering with smaller firms.
• The region has a potential cluster of research excellence and commercial potential in AT virtually unparalleled in Australia eg. defence technologies, telecommunications equipment, environmental education, waste management, remote sensing etc.

The bad news

• In relative terms, only modest value is derived from the key science and industry policymakers, and the major spending departments, in its midst.
• The public agencies are not currently influential as leading edge customers, and cannot therefore greatly assist in winning export business.
• Institutional structures in some public organisations do not favour collaboration.
• Most SMEs have only a sparse knowledge of upcoming tenders or forward purchasing plans of key public agencies.
• A well-entrenched mindset exists (outside the region) regarding Canberra's lack of competitive advantages in industrial development.
• The extent of manufacturing in most product segments is modest.

Investment Facilitation & Program Delivery

In the area of investment facilitation, Invest Australia is now a pivotal part of the ISR portfolio and has links to the Prime Minister's Investment Coordinator, Bob Mansfield, as well as to DTRS where its Minister (and Deputy PM) John Anderson sees regional investment as a fundamentally important issue. The most interesting thing however is Minister Anderson's interest in a 'whole of government' approach to program delivery to rural and regional areas, in order to address the problems discussed earlier.

The 'whole of government' approach is also being embraced or at least thought about in other Commonwealth agencies. It stems from the general recognition that one of the major weaknesses of the federal-state system is in the delivery of programs ie. delays, mixed messages, inefficiencies in infrastructure due to poor consultation.

It is easy to see the relevance of cluster agendas in the above context.

A number of analysts (including myself) believe that the Commonwealth Government is on the right track in pursuing a whole of government approach. While the track record is dismal because of political jealousies, we feel that if regional agendas can be de-politicised through cluster or related agendas, then real progress could be achieved. The answer lies in getting regional leaders and project champions to sign off on regional development frameworks, and for Commonwealth and State government policies and programs to be then fashioned to fit. There are precedents - Cairns Airport, Gulf of Carpentaria Mineral Province, Port Lincoln Marine Centre, Kidman Way highway etc. The Spencer Gulf agenda currently unfolding is another example.

Such an emphasis would also align with the OECD findings that a major policy shift is underway internationally, and that new roles for government at a national, state and local level are being defined. The emphasis is now on:

• ensuring the supply of high-quality inputs such as educated citizens and physical infrastructure.
• promoting cluster formation, and pursuing competitive advantage and specialisation
• systematically upgrading public or quasi-public goods that have a significant impact on many linked businesses.
• rethinking who does what in the economy, and opening up new public-private avenues for collaborative action.

A 'New Deal' on program delivery?

What this means in the Australian context is that new, more effective relationships must be forged between governments. Indeed, from my vantage point, the single biggest contribution that the Commonwealth and State governments could make to regional Australia would be to agree to embrace a "whole of government" agenda - a 'New Deal' on program delivery. After all, something similar was achieved in respect of business programs under the AusIndustry banner.

If governments are concerned about the dissent in the Bush, and getting a balanced approach to economic development, they must find better ways of making their programs 'hit the ground'.

Governments must convert their political rhetoric - about empowering local leaders, facilitating business and government partnerships, and building competitive advantage - into consistent and coordinated actions. Equally important is the need to facilitate the greater involvement of major companies, investment houses and infrastructure utilities in industry development at the regional level.

The Way Forward - more work, more collaboration

As the foregoing suggests, clustering concepts have not as yet become part of the mainstream debate in Australia. There is no doubt that firms and individuals tend to cluster - hence to use the verb is kosher. However to use cluster as a noun raises a few eyebrows - perhaps "industrial precinct" is a better term.

My company, together with the CSIRO and certain industry associations and State agencies, is currently finalising an application for a research proposal under the Technology Diffusion Program.

In essence, we propose to raise awareness about the potential for clusters to deal with the Stranger in the Night syndrome. We aim to do this by developing a best practice 'Industry Cluster Development Model' (or Models) specific to Australia, based on the best features of overseas models while incorporating Australian nuances and conditions.

We plan to determine how infrastructure audits can be used to introduce improved methods of shared public-private sector funding packages, as a means of (i) improving both the delivery of government assistance to SMEs, and (ii) facilitating the expenditure of institutional investments in the industrial sector.

The project will cover a range of policy and industrial investment issues at the forefront of knowledge-based economic development. Most of these issues have been raised in this paper.

The project consists of two main tasks:

• To rigorously identify the critical factors that have underpinned the development of specific clusters overseas and in Australia.
• To develop ways of addressing the drawbacks to the introduction of industry clustering concepts in Australia. viz.

• A lack of know-how in getting the clustering process started.
• Insufficient trainers/facilitators with the knowledge of SME requirements and clustering concepts
• The absence of any case studies and 'how to' manuals based on Australian circumstances.
• The lack of sustained commitment by government agencies.

If our proposed research is of interest to anyone in the audience, I would be most grateful if you could see me at the coffee break, or phone, fax or e-mail ASAP.

Concluding Remarks

I have come here today to share my experience in the clustering field. Some of the issues with which cluster agendas deal lie at the heart of national development. What greatly interests me is the way in which properly organised cluster agendas can connect otherwise unconnected parties, give them confidence and provide a focus on outcomes, as distinct from professional meeting attendance.

I believe that clustering concepts offer a process to address the Stranger in the Night syndrome - an affliction that is a common characteristic of the regional, scientific and industrial landscapes of Australia.

I thank Morris Jones, Maroochy Shire Council and the other conference sponsors for this opportunity to address you.

Thank you.

References

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