Small Town Decline and Survival: Trends, Success Factors and Policy Issues

Paper presented to the “Future of Australia’s Country Towns” Conference at La Trobe University, Bendigo, June 2000. The paper draws on other papers by the author, including two articles (one co-authored) in Regional Policy and Practice, a paper initially presented at a Regional Science Association Conference at Newcastle in September 1999, and a submission prepared by the author for the Department of State and Regional Development to a NSW Parliamentary inquiry into strategies for rural towns.

The views presented in the paper are those of the author and do not necessarily represent any positions of the NSW Government or of the NSW Department of State and Regional Development

1..Introduction

The debate in the national media continues about the regional divides in Australia. Recent research has attempted to isolate the chief characteristics of the emerging inequalities in Australian society, and the consensus is, firstly, that the widening disparities in wealth have a spatial dimension, and secondly, that one of the divides is between metropolitan and non-metropolitan regions.

There is, sometimes, a very glib approach in the media to the question of the city versus country divide. There are, broadly, two views – the “regional Australia is dying” view, and the “regional Australia is doing well” view. There is often a lack of recognition of the complexity of regional development. Governments, of course, want to accentuate the positive. The media tends to focus on “dying” rural towns.

The truth lies somewhere in between.

A number of regional problems have surfaced over recent decades that have demanded the attention of policy makers and generated calls by regional interests for ameliorative action by governments. These problems include the sudden economic shocks caused by downturns in “one industry towns” as a result of economic restructuring; the continued emptying of the inland; the ongoing (and increasing) domination of State economies by their capital cities as a result of the processes of globalisation; increasing disparities within and between regions across a wide range of social and economic indicators; and environmental pressures and high unemployment in rapidly growing coastal regions.

Hence the plight of small towns is but one regional problem among many.

However, of these regional problems, the dying small town syndrome seems both the most intractable and the one that continues to capture the public’s imagination. Small town issues also can be seen as a surrogate for the problems of non-metropolitan Australia generally.

Small towns – both in Australia and elsewhere – face considerable economic development challenges. However, while there has been much recent focus on the plight of regional Australia and on the decline of small towns, there are many regions, and many towns, that are not losing population or businesses, and that are doing well economically. It is important that success stories are recognised as well as the places that are facing difficulties.

Equally, there is widespread evidence that many small towns are in trouble. There are many reasons for disparities within and between regions, for different rates of economic growth, and for regional decline. These reasons are explored in depth in the paper, and include reference to theory (tendencies towards agglomeration economies), as well as to history and geography (Australia’s existing settlement pattern). The paper also examines recent trends such as globalisation and centralisation that have strengthened the position of larger regional centres and cities in relation to smaller communities.

There has been an increasing public focus on the issue of small town decline; heightened political attention following the move away from major political parties in recent elections associated with One Nation and independents; emerging interest by churches and welfare groups in the issue of rural poverty; a growing debate about the decline of “social capital”; and an endless lobbying effort by regional stakeholders for governments to “do something”.

Some observers have argued that governments can’t really do much about small town survival in view of the sheer size of the forces ranged against small towns. They argue, in some cases, for “euthenasia” for small towns, for “people prosperity” over “place prosperity”.

Why should governments attempt to save places when people are leaving them? Does it really matter if small towns vanish, particularly if nearby larger regional centres are thriving? Why not help people to leave small towns that are in decline? Many towns in decline have been that way for years. What is new?

A number of policy issues are therefore raised by the debate. The debate also mirrors the larger debate about the objectives of, and rationales for, regional policies more generally. Current efforts seek to provide small towns with hope for their futures, but hope based on their own efforts. Funding is limited and is mainly provided for strengthening local economic capacity.

2. Different Views on Small Town Problems

There are at least four views as to whether the decline of small towns is a policy problem that should be given particular attention by government. These views are at least partly related to what is perceived to have been the primary cause of small town decline, and partly related to views about the proper role of government in addressing disparities in wealth and living standards.

2.1 Small Town Decline is Inevitable

One view is that the problem of small town decline is inevitable and the emerging settlement pattern is a logical consequence of our geography and history, and, more recently, of inexorable forces of globalisation. Factors in small town decline are seen to be the small size of the overall population; the large, dry inland; the nature of farming in Australia since colonial times; the increasing mechanisation of farms and the decreasing profitability of some farming activities; the preference of Australians for coastal living, particularly for retirement; and the preference of many of today’s fastest growing industries for locating in large cities.

This is a position that has been put forcefully by Tony Sorensen on a number of occasions. Proponents of this position tend towards the view that the role of government is, and should be, limited. People who hold this view point out, firstly, that the problem of declining small towns is not new – small towns have been declining in Australia since at least the turn of the century – and secondly, that there are many towns not declining.

The Productivity Commission routinely advocates freeing up barriers to mobility of labour and capital (to enhance “people prosperity”). This approach sees no intrinsic merit in “maintaining” small towns if people and businesses are choosing to leave for larger centres.

Sorensen has even talked about “euthenasia” as a possible policy response to small town decline.

On this view, the forces that have caused the decline of small towns are such that governments are really powerless to stop them, and therefore should not seek to do so. As Sorensen has stated:

It is probably safe to say that a five cent decline in the value of the Australian dollar against its US counterpart … will help the economy of rural Australia more than all the formal State decentralisation programs of the last ten years put together (Sorensen in Sorensen and Epps 1993: 226).

2.2 Small Towns Should be Assisted for Equity Reasons

A second view may hold that small town decline is inevitable, but that, on equity grounds, special assistance is owed to small towns. This view stresses the importance of an adequate level of services for people, irrespective of location. While towns may be losing population and economic activity as a result of the forces of globalisation and of competition from larger centres and the city, remaining residents still have the right to a certain standard of living.

2.3 Government Policies Have Contributed to Small Town Decline

A third view is that small town decline is not inevitable, nor simply the result of inexorable forces, but rather the result of a mix of short and longer term causes which include actions by governments and inaction by governments. Part of this view may be that globalisation is not an inevitable process, but a policy pursued actively by governments, and one that is capable of modification or even reversal.

This view is reminiscent of the theory of circular and cumulative causation and the notions of the “centre” and “periphery” first propounded by regional development theorists such as Gunnar Myrdal, John Friedmann and Hirschmann in the 1950s and 1960s. On this view, the growth of large centres contributes to the decline of small centres, and is cumulative over time.

According to those who hold to this view, governments have a choice as to whether to pursue policies that will hasten small town decline or to pursue policies that will slow down or even reverse decline. And, until recently (and arguably still), governments have decided to let regional Australia go. As Taylor has stated:

Governments and big corporations have taken the decision to pull out of rural Australia and as a result many of the people have gone too (Cribb 1994: 13).

Organisations like banks and governments that have downsized in regional areas are quick to point out that people have made choices about leaving small towns too – a long time before they decided to leave. This was the reason for the banks’ actually commissioning their 1997 study of demographics and regional service withdrawal. Clearly there is a potential for confusion of cause and effect involved in the cumulative process of small town decline.

It is in the interests of organisations that have left regional Australia to emphasise the fact that small town decline is the result of many factors and has been a long term process. However, there is substantial evidence that such organisations have been part of the problem and their own withdrawal has been a contributing factor to the regional malaise.

2.4 Communities Can Turn Their Economies Around Themselves

A fourth view, different from the other three, is that small town decline is not inevitable and can be reversed by local community action. Any town can make it given the right circumstances, even against the odds. This is the view of what might be termed the “small town optimists”, often consultants and future search facilitators who are involved in community economic development and who often tell of the success stories of small towns who have “made it” despite the odds. Proponents of this view focus on the need for community action, strategic planning and leadership and assume that governments are not going to “save” small towns. As Derriman states, “… enterprise and ingenuity can prevail over rural adversity” (Derriman 1999).

A variation of this view (that decline is not inevitable) is that some towns will die while others thrive. According to Roy Powell (Derriman 1999), success will depend on “passion and creativity”, in other words, on local resources.

On this view, the proper role of government in relation to small towns and the purposes of policy are not clear. At the very least, this scenario would entail governments working with local resources and encouraging them.

3. Challenges Facing Regional Australia

The causes of regional disparities in investment, growth and employment levels between regions and within regions are complex. Regional development policies must take into account and address a number of divergent economic trends across the State:

• the limited or declining growth of many smaller, inland towns, particularly in the wheat-sheep belt;
• persistently high unemployment in a number of regions;
• the rapid population growth in some coastal locations, largely associated with retirement and tourism;
• dramatic farm adjustment processes which have important consequences for rural communities;
• the steady growth of the major regional centres which are increasingly absorbing government and private sector services, often at the expense of surrounding smaller centres; and
• difficult rural trading conditions accentuated in the 1980s and 1990s by severe droughts.

Many regional communities are confronting significant and rapid adjustment processes, unfavourable seasonal and cyclical conditions, and out-migration from smaller towns, particularly by young people. There are general impediments to regional economic development, and they have been recognised by government.

The spatial impacts of what has generally become known as “globalisation” contain both threats and opportunities for regional New South Wales, and governments and rural communities have had to respond to the challenges. Governments have recognised the need to focus on providing communities with some of the tools they need to make the transformation required to survive and prosper in a fundamentally changed environment. Communities have to refocus on their competitive advantages, and seek new ones.

A central concern in the consideration of regional issues is the means by which communities can effect change and the level and types of resources appropriate to meet the challenge. The revitalisation of regions and regional communities requires strategic intervention, vision, strategy, leadership, partnership and action, driven at the local level and utilising the breadth of community resources.

4. Trends in Small Towns in New South Wales

It is important to have an accurate understanding of the current condition of smaller regional centres in order to be able to consider properly possible policy prescriptions to deal with their problems. In particular, the relative decline of small towns is an issue of considerable current debate requiring clarification.

4.1 Definitions of “Small Towns”

There are differences of definition in relation to small towns. The Australian Bureau of Statistics (ABS 1998) defined small towns as those with populations between 1 000 and 19 999. The Australian Bankers’ Association (ABA) study of small town services decline (1998) focused on towns of under 17 500. The Australian Housing and Urban Research Institute (AHURI) study of community opportunity and vulnerability (1999) defines small regional towns as those between 4 000 and 9 999.

DSRD, in its Main Street/Small Towns Program, provides assistance to communities of between 1 500 and 15 000, with some flexibility built in. Prior to 1996, when the Main Street and Small Towns Programs were separate, assistance under the Small Towns Program was available to towns of under 5 000 people.

Assistance under other DSRD programs is triggered by certain conditions in communities rather than their size.

In the New South Wales/Australian context, the ABS and ABA definitions of a small town seems too high at the high end (19 999 and 17 500 respectively).

4.2 Recent Demographic Trends Impacting on Small Towns in Regional New South Wales

Growing or declining population can be an important indicator of the economic health of a regional community. A number of studies have analysed recent demographic trends and their impacts on regional communities, and in particular their impacts on smaller regional centres.

A number of recent studies have clarified the relative decline of small towns. The ABS and ABA have examined the demographic aspects of decline. While population loss or stagnation is only one among a number of potential indicators of decline, it is an important one and is the focus of much regional development discussion.

The ABS (1998) makes a number of points about the decline of small towns that place the problem in perspective:

• in 1996 there were 678 towns in Australia with a population between 1 000 and 19 999, one hundred more towns than in 1986 (one might dispute this definition of small towns, at both ends of the scale);
• they contained 2.5m people, or 324 000 more than in 1986;
• of the 578 towns of this size in 1986, 31% have since lost population, with 10% declining by at least 10%;
• at the same time, 47% grew by at least 10%;
• towns in decline were usually inland, in wheat-sheep belts, dryland grazing regions or mining regions;
• most towns experiencing substantial population growth were coastal, peri-metropolitan or associated with particular growth industries such as tourism or wine growing; and
• the proportion of people living in towns under 1 000 and on farms (defined as rural) also fell between 1986 and 1996.

Hence perhaps the problem of “small towns” is really a problem for certain types of region, not necessarily related to size alone.

Towns in New South Wales having lost 10% of population or more since 1986 have been Werris Creek (-18.4%); Barraba (-15.4%); Dorrigo (-13.2%); Wee Waa (-11.7%); Narrabri (-11.4%); Murrumburrah-Harden (-16.9%); Batlow (-12.9%); Scone (-18.8%); Nyngan (-10.5%); and Wilcannia (-34.4%).

A number of further towns had large absolute declines of less than 10% - Moree (-945); Lithgow (-928); Gunnedah (-829); and Kempsey (-705).

While many of these declining towns are inland, it is also the case that a number of inland towns are growing at a rate of more than 1% per year.

Another recent study, commissioned by the ABA (1998), examined trends in the position of local government areas from 1976 to 1996. Of the 700 Local Government Areas (LGAs) across Australia, the study examined the 456 which it defined as “rural”, that is containing fewer than 17 500 people in 1996. Of the 456, 215 LGAs have been subject to “… a process of sustained population loss since 1976” (ABA 1998: 2).

According to the ABA:

The result is a process of demographic erosion that has reduced the number of people in 215 rural municipalities from 883 747 in 1976 to 778 452 in 1996 which is a decrease of 12% (ABA 1998:2).

Nugent (1998) has analysed NSW population movements between 1991 and 1996 revealing complex intrastate demographic trends, the continuing domination by Sydney of the State’s population, a pattern of inland migration to the coast and interstate, and very low growth or decline among inland regions. According to Nugent’s analysis, inland regions’ average annual growth between 1991 and 1996 was a low 0.03% (0.63% from 1986-1991), and the population of most inland Statistical Local Areas actually fell in the latest intercensal period. Most growth occurred in larger regional centres or due to the opening of new mines or other events specific to the area concerned. Coastal growth slowed in comparison to earlier periods, while remaining higher than the State average.

Analysis of the 1991-96 period in New South Wales further clarifies the scope of the problem. The following trends occurred:

• non-coastal centres grew at a significantly lower rate than the rest of the State, and while towns over 10 000 grew strongly (10 000 to 20 000 towns grew more strongly than those over 20 000), towns from 3 000 to 10 000 actually lost population. Interestingly, towns from 500 to 2 000 also grew relatively strongly;
• 88% of coastal centres experienced population increase, with coastal towns having an average growth rate over the period of 16% compared to 5.7% for all rural centres;
• the lowest growth across all rural centres in New South Wales occurred in the 5 000 to 10 000 band, the highest in the 1 000 to 2 000 band. Many of these, however, are coastal resorts;
• of 15 towns with over 20 000 people in 1991, 12 have increased their population (those that did not were Armidale, Broken Hill and Goulburn);
• In 1997-98, 61% of urban centres in regional New South Wales continued to grow. (These figures are based on an internal NSW Government analysis).

Hence there are a number of conclusions to be drawn about demographic trends in relation to smaller regional centres in New South Wales:

• not all small regional centres are losing population;
• not all larger regional centres are growing strongly;
• coastal locations and locations close to the metropolitan region have tended to grow more strongly;
• regions are not simply losing population to Sydney – intra-state migration is far more complex than this; and
• inland regions are generally faring poorly in terms of population growth.

It also should be noted that, although many regional communities dwell on the issue of out-migration, population growth is not the only barometer of community economic health. It is also important to look behind the demographic trends to examine the underlying strength of regional economies.

Finally, it is important to note that the decline of many small towns and the forces driving this decline are not confined to New South Wales or Australia. These forces are shaping trends in regional development in most countries comparable to Australia.

4.3 Longer Term Economic Trends Affecting Regional Centres

While there is a strong current focus at the political level on problems in regional Australia, questions of regional depopulation generally and small town decline in particular are not necessarily recent phenomena. They reflect much longer term demographic and structural trends.

4.3.1 A Long History of Rural Depopulation

There is no doubt that New South Wales is demographically and economically dominated by its capital, and has been since its settlement by Europeans. The nature of the State’s colonisation, the early role of Sydney as a port city in a distant colonial outpost reliant on agricultural exports, the development of the State’s transport system, and the continuing and increasing tendency of migrants to prefer settlement in Sydney, have all reinforced Sydney’s dominance.

Against this background, rural regions have often felt the poor relation. From a position earlier this century of having less than 40 % of the State’s population, Sydney now has over 60 %. When combined with Newcastle and Wollongong, the greater metropolitan region contains around 73 % of the State’s population.

Over time, smaller and more remote inland towns, in particular, have struggled to retain their populations, as young people have left in search of education and employment. One of the key challenges for communities battling against out-migration is to achieve critical mass in order to attract investment and to retain services.

It is clear that the movement of population and economic activity to cities is a universal phenomenon not confined to New South Wales or Australia. Equally, the growth of urban agglomerations suggests that there are significant benefits associated with concentrations of economic activity. There are obvious economies of scale and scope that can be enjoyed in larger population centres, such as those associated with access to support services. This translates into real productivity benefits to city locations.

In the Australian context, the State capital cities have had a clear advantage with respect to agglomeration economies compared to the non-metropolitan regions. To the extent that size leads to additional growth, there are powerful forces at work that disadvantage the regions in a relative sense.

4.3.2 A Changing Farm Economy and Associated Economic Adjustment Pressures

Traditionally, rural communities have relied on the farm sector for their economic well-being. But since the 1970s (at least), the farm sector has changed dramatically, with important consequences for rural communities. Agriculture accounts now for far less of the State’s and the nation’s economic output, farms are fewer and bigger, and farms have become increasingly mechanised resulting in a fall in farm labour.

In addition to such adjustment stresses, farmers have also had to contend with major droughts, inconsistent and declining commodity prices, a cost-price squeeze and increased farm debt. Farm profitability for many has declined, and a lot of farm businesses are now supplemented by off-farm income.

The consequences for rural communities have been equally stark. The need for fewer farm workers has led to out-migration, the nature of the services provided to farms by the communities has changed and their level diminished, and the formerly close relationship between farms and rural communities has declined.

A recent study by the Australian Bureau of Agricultural and Resource Economics (ABARE 1999) sheds light on the extent of the processes of change at work in the farm economy:

• agricultural industries have faced a long term decline in the margin between real farm receipts and real farm costs, a common feature of resource based industries world wide;
• between 1955-56 and 1998-99, the volume of farm production rose by 187%, and the real gross value of farm production rose by 25%, with falling real prices for farm product;
• with rising costs, the net farm value of farm production fell by around 54% in real terms, with a decline in the number of commercial farms of 1.3% or 2 000 farms per year;
• many small farms were sold and amalgamated with other farms (ABARE 1999: 8).

4.3.3 Growth Pressures on Coastal Cities and Regions

While many inland, smaller towns have suffered from static or declining populations, coastal regions, such as Northern Rivers, the Mid North Coast, the Central Coast and the Illawarra, have experienced substantial population growth, based largely on lifestyle choices, tourism and retirement, with consequent environmental pressures on fragile ecosystems.

These regions have, since the 1980s, suffered from chronically (and relatively) high unemployment and a need for new investment to create jobs and prevent social problems. In some cases, traditional industries such as forestry have experienced adjustment pressures, and coastal regions generally have seen vigorous debates over the competing needs of development and ecological sustainability.

Hence while coastal regions have experienced dramatic population growth, they have not been without their problems, different though they are from those of the inland with declining populations.

4.3.4 Smaller and Inland Towns Competing with Larger Regional Centres – the So-called “Sponge City” Phenomenon

One of the key trends of the last twenty years has been the continued steady growth of regional centres, often at the expense of smaller towns. This has posed a major challenge to the communities concerned and to government.

Small towns have been hit by two related developments which have favoured larger regional centres. As people have left following farm restructuring, industry rationalisation, corporatisation and deregulation, services have declined. At the same time, improved transport and mobility have encouraged inhabitants of smaller centres to look to regional cities for their services. Both government services and private sector services such as banking have relocated to larger centres of population which can more readily justify providing those services. The trend towards outshopping from small towns has only led to further loss of businesses from those towns.

Over the last 20 years, larger regional centres such as Dubbo, Wagga Wagga and Albury have continued to grow as their economies have diversified and they have developed as key service centres for their regions. For example, Wagga Wagga has increased its population by 26% in the period 1981-96 to 46 700, including 14% growth from 1991-96. Wagga Wagga has increased its population in every intercensal period since 1981.

While many “second tier” regional centres have also prospered, particularly where located on major transport routes, smaller towns have undoubtedly suffered. And it is often the cumulative impact of many decisions, by individuals who leave, businesses that close down, and residents who choose to shop in nearby centres, which contribute over time to the declining position of small towns.

The decline in the position of smaller centres in relation to larger centres in the Australian settlement system can be measured by recent jobs growth. According to the ABARE study (ABARE 1999), the strongest percentage job growth in inland and remote regions between 1986 and 1996 occurred in statistical local areas associated with urban centres of over 20 000. There is nothing surprising in these figures in view of the trends that have been occurring in the regional economy. In inland and remote regions, declining population was most common among areas with less than

2 000 people in their largest urban centre, and in these centres, jobs growth was less than population growth (ABARE 1999: vii).

The ABARE study’s findings about the relative strength of jobs growth in larger centres are confirmed by analysis done by Andrew Beer (1999). According to Beer, there was an increase of 500 000 in the number of jobs in regional cities (over 10 000 population) across Australia from 1991-96. The share of the workforce in these larger centres grew from 10.4% to 10.75% in the same period (Beer 1999: 9).

A number of factors have encouraged the phenomenon increasingly described as “sponge cities”, a term originally used by consultant Bernard Salt. Processes at work include better transport and communications, diminishing links between farmers and their local communities, the regionalisation of services, and the preferences of consumers for wider choices in products and services.

Structural change in the economy has resulted in increased growth in the services sector in terms of employment and its contribution to the economy. However, benefits from this trend are not distributed evenly across regional areas as a trend of rationalisation and centralisation of services has coincided with the growth of the sector.

The centralising trends of the services sector mean that gains are distributed in favour of regional centres and few gains are made in favour of smaller towns. This has changed the traditional central place functions of towns, and increased the competition between regional centres and smaller towns in their hinterland. More and more people in the hinterland are accessing services in the regional centre, bypassing their local businesses - referred to as “outshopping”. This represents an economic leakage from the local economy and has reduced the ability of smaller towns to service their populations, thus undermining their positions as service centres.

The centralising forces have occurred in response to a number of trends which include:

• improvements in transport and telecommunications which allow firms to access wider geographic markets from one central location as transport costs are cheaper. Improvements in road transport also allow consumers to more easily access services at a greater distance;
• technological innovation which has resulted in greater sophistication in the provision of goods and services. Increasing specialisation and technical complexity require greater support networks not available in smaller towns. Computerised banking has reduced the need for banking staff in rural areas, as have automatic telephones, computerised and rationalised railways, and hi-technology vehicles (Jensen 1997). Again these relate to agglomeration economies with benefits arising from economies of scale and positive externalities; and
• rationalisation of services which refers to the “search for efficiencies” in resource use (Jensen 1997).

While improvements in technology, transport and telecommunications are necessary to survive in the new competitive global environment, smaller centres are unable to capture the benefits of these advances. They struggle to remain viable as services and employment opportunities are “rationalised” into regional centres and as a result experience depopulation. These trends have been evident in the provision of both private sector and public sector services.

The provision of services, or lack thereof, has significant implications for rural communities. With the rationalisation of employment opportunities out of rural areas into the regional centre, resulting in a pull of people out of rural areas, the ability of the rural community to retain and attract residents and future investment is impaired. As services are withdrawn from rural areas, the quality of life, measured in terms of access to essential and higher value goods and services, declines.

These trends have given rise to the “capturing effect” of the regional centre at the expense of the smaller towns in the hinterland and have influenced the growth and development prospects of the smaller towns. This new relationship between the town and the regional centre has been examined in a study undertaken by Gastin (1996). These regional trends and the differential prospects of growth and development for small towns arising from them were studied. Some towns close to the regional centre may benefit from this relationship in terms of population growth as they take on the function of a commuter settlement however their prospects for economic development are hampered as their economic functions are “captured” by the regional centre. In this situation, population growth may not necessarily lead to economic development.

Towns at greater distance from the centre however, experience less leakage of economic functions to the centre and may be better equipped to achieve future economic development, and thus population growth. The impacts of the longer term trends, however, also need to be considered when assessing the growth and development prospects of these centres.

In both situations, however, the regional centre exerts some degree of presence over the smaller towns.

As a result of this new balance in the regional systems, which has been tipped in favour of the regional centre, towns find it increasingly difficult to establish their position in the spheres of influence in which they must function. Small towns are a small unit under the influence of these spheres and their growth and development prospects are at risk unless they become outward looking, ready to take on new ideas, ready to take risks and look for opportunities in this new environment.

However, many towns find themselves stuck in the “quicksand” in responding to the challenges of the “new economy”. There is a barrier between people with imagination in smaller towns who strike obstacles in developing their ideas due to a lack of management skills, finance, risk taking or knowledge about the greater environment in which they are operating. People outside the towns who possess the management skills, finance and understanding of the greater environment encounter difficulties because they lack an understanding of the smaller towns, their obstacles and opportunities. There are also issues of community dynamics and infrastructure deficiencies contributing to the “quicksand”.

While these processes seem inexorable and certainly beyond the control of governments, government (and government agency) actions have nevertheless contributed to the out-migration of people, jobs, money and skills from smaller centres to larger centres. On the other hand, until recently, many small towns have not pursued active economic development strategies designed to revive business confidence and create new investment.

4.3.5 The Regional Impacts of Globalisation

The Australian economy has become increasingly globalised since the 1970s, and this has had a dramatic impact on both regions and on regional policies. Globalisation has been characterised by the dominance of mobile multinational corporations, changing patterns of regional trade and investment, the reduction of global trade barriers and the rapid spread of electronic communications and information technology. Industries are becoming increasingly globally integrated and foreign investment more footloose. Firms face dramatically increased levels of competition.

Non-metropolitan regions and rural communities have not been immune from these changes. In fact, lacking critical mass in many cases, they have been much more exposed to the changing environment than metropolitan regions. While it is true that global capital is now much more footloose, it typically tends to flow to “global cities” such as Sydney. The regional headquarters of multinational firms tend to locate in the greater metropolitan region.

The new growth industries, such as information technology and telecommunications, business services and other knowledge based industries, favour the larger centres where corporate users of services are located. Hence there can be a mismatch between the location of “yesterday’s jobs” and industries and those of the future.

There is also the issue of the impact on locations of policy changes associated with the process of globalisation. A number of commentators have argued that globalisation has been driven as much by policy decisions as by markets and by technological advances. Decisions such as the deregulation of the financial system in the early 1980s, the reduction in industry protection from the mid 1980s and the adherence to national competition policy in the 1990s have all had considerable spatial consequences that have only reinforced the competitive pressures associated with increased global trade and lower barriers to global communication.

4.4 Current Manifestations of Regional Disparities Affecting Small Towns

How much of a problem is small town decline, and what are its chief manifestations?

Of all the regional problems faced by communities and governments, the decline of small towns seems both the most intractable and the one that continues to capture the public imagination. Small town issues also can be seen as a surrogate for the problems of non-metropolitan regions generally.

Manifestations of small town problems are many. A number of recent events are sufficient to highlight the issue:

• the closure of the Heinz Watties cannery in Eden, resulting in the loss of jobs and income to the town;
• the loss of social capital associated with the recent closure of the Gunnedah sports club after over 40 years of operation;
• banks continuing to close branches in small towns;
• the loss of jobs for Bombala timber workers partly due to forestry industry restructuring and government decisions to save old growth forests;
• the loss of several hundred jobs in the Aberdeen abattoir in the Hunter Valley;
• the loss of jobs at Harden abattoir affecting lamb producers following the US lamb tariff decision;
• the loss of hotel licences in small towns as licences are bought out and relocated to the metropolitan area where they are more profitable due to gambling revenue;
• car dealerships disappearing from small country towns;
• the “sponge city” phenomenon in places like Dubbo where regional centre growth is occurring at the expense of surrounding towns;
• continued out-migration from wheat-sheep belt towns like Brewarrina, which has suffered a 20% population loss over 20 years;
• the loss of skills associated with out-migration, particularly among 20-24 year olds, with the loss of government positions;
• the recent decline in real estate values in country towns;
• the closure of businesses in many centres due to shrinking markets; and
• increasing race problems and crime in towns like Wilcannia related to high unemployment.

The list is much longer than this. The plight of small towns is perhaps best exemplified by the events in Merriwa in July 1999, where civil disobedience and violent protest came to be associated with regional development. The town was protesting against the impending loss of a demountable classroom at the local school, forming a human chain around the school in an effort to prevent its removal. This amounted to an attempt by a small town physically to prevent the removal of what was regarded as a piece of essential infrastructure in the town. One of the protesters regarded the demountable’s attempted removal as “… an insult to the whole of regional NSW” (Daily Telegraph 6 July 1999).

What are the problems? There is a familiar list which includes out-migration; youth leaving; youth alienation; lack of leadership; the loss of skills; out-shopping; the closure of businesses; the regionalisation of services”; the withdrawal of services altogether; and the loss of “social capital”.

Things like population loss, jobs loss and business closures are the manifestations of the problem. There is a need to separate cause from effect, and this is not necessarily easy.

The ABS sums up the plight of small towns thus:

People living in declining towns risk losing their savings, livelihood and support systems as they confront the break-up of their community, loss of jobs, deteriorating infrastructure and declining property values. In addition, declining towns often lose services through the closure of schools, hospitals, retail establishments and banks. Such closures have a direct impact on the health and well being of remaining residents, but they can also have psychological impact, with many seeing the closure of central services as signalling the “death of a town” (ABS 1998: 10).

The State of the Regions report published by National Economics in 1998 summed up the parlous state of many communities in rural regions:

Rural Australia is lagging behind other regions… The population of some inland regions is declining… while others are growing very slowly… The proportion of people living in poverty is increasing. Unemployment and under-employment are high. Real incomes are declining. One of the major challenges for rural Australia is low education attainment… (National Economics 1998: 14).

The problems of small towns tend to mount up in a cumulative fashion, often confusing cause and effect. A number of commentators have also noted the linkages between the lack of economic development opportunities in some regional communities and emerging social problems such as poor health outcomes, crime, marriage breakdown and suicide.

The situation in small towns cannot be considered in isolation from broader regional trends and indicators. Indicators of regional disparities (both differences between regions and differences within regions) and of regional decline can include a broad range of measures, both economic and social. They include the following:

• population growth;
• economic activity, employment opportunities and unemployment levels;
• wealth, income and skill levels;
• access to services;
• the degree of dependence on social security and other transfer payments;
• the health of residents;
• the distribution of the costs and benefits of structural and policy-induced change; and
• access to new technologies.

A number of recent studies, for example those by the Bureau of Rural Sciences (1999), Vinson (1999), the Human Rights and Equal Opportunities Commission (HREOC 1999), AHURI (1999) and National Economics (1999), have identified both problems of regions and problem regions. These studies have generally concluded that there are wide (and widening) disparities across regions in Australia, and that there are substantial disparities between metropolitan and non-metropolitan regions in particular.

Whether these disparities are more serious for smaller towns requires further examination, but the general consensus among observers is that small towns tend to fare the worst across a broad range of measures. For example, Roy Powell (1997) has observed that:

Small towns are at the end of the chain with little going for them (Powell 1997a: 1).

Powell’s argument is that the forces of globalisation and what he and others have termed the “new economic geography” are inherently centralising, and that larger centres now have substantial and increasing economic advantages over smaller centres.

According to AHURI, in its study of community opportunity and vulnerability across Australia, there is a “ … marked increase in the incidence of community vulnerability” in smaller centres. Three quarters of Australia’s small towns are at the vulnerable end of AHURI’s continuum, whereas larger regional centres have a much more even mix of vulnerable communities and communities with opportunity.

Hence there is a common view that, not only are non-metropolitan regions generally losing out in terms of economic growth at the present time, but that within non-metropolitan regions, it is the smaller centres that find it most difficult to sustain economic development.

4.5 Are Small Town Economic Problems Worsening?

The decline of small rural towns is not new. The decline has been a common phenomenon in the twentieth century, both in Australia and in other countries. One author has noted:

An exploration of the literature of the last forty years reveals the recurring theme of town decline and rural poverty. Town decline has been evident in Australia since the last century (Geno 1997: 8).

Certainly the problem is now more prominent, for example in the media. It is more recognised as a problem by opinion leaders. This has been assisted by organisations such as the churches and the Human Rights and Equal Opportunities Commission (HREOC) becoming involved in the debate. A number of respected academics such as Rod Jensen have also lent weight to the debate over the plight of regional Australia generally by commenting on its decline. According to Jensen:

The ‘bush’, once an icon of everything Australian, senses that it is the unlucky part of the lucky country. The continuing and cumulative disadvantages of rural regions have finally reached a point where rural groups, observers and commentators have identified a ‘crisis in the bush’ (Jensen 1997: 6).

And the alarming loss of services and infrastructure from small towns in the 1990s too has focused attention on the problem. For example, Asa Wahlquist has done wide research of the loss of services and found that up to 30 000 jobs disappeared from regional New South Wales in the decade to 1996 (Wahlquist 1996).

While a lot of work has been done recently on small town service losses, little earlier work was done. Hence it is difficult to tell whether the loss of services has actually accelerated or simply become more talked about.

Certainly the problem of widening regional disparities across a number of economic and social indicators has only been on the public agenda in the last few years. The plight of small towns has come to be seen as part of this broad context of disparities.

The Productivity Commission draft report on the Impact of Competition Policy on Rural Australia (Productivity Commission 1999) referred in detail to the impacts of industry restructuring on regional areas. The Deputy Prime Minister has recently referred to the emergence of “two nations”. The Catholic Church has become involved in the debate, issuing a number of reports outlining the widening gaps between urban and regional Australia and the emergence of rural poverty. HREOC (in its Bush Talks tour and report) has gone so far as to label the problems of regional Australia a human rights issue, and has recently (June 1999) called for an “audit” of dying towns (See Jopson 1999). (This proposal has been decried as methodologically unsound and politically unwise by demographer Bernard Salt, and has also been dismissed by the Deputy Prime Minister).

There is ample evidence to suggest both that the position of non-metropolitan Australia is worsening relative to metropolitan Australia, and that the position of smaller towns is worsening in relation to larger regional centres.

A number of commentators have suggested that regional disparities are widening. Although small communities have been facing out-migration for many decades, it is suggested that their problems have intensified in the 1990s, along with those of non-metropolitan regions generally.

Several trends over the last decade (noted above) suggest that the perceptions of widening disparities are accurate. The trends include the following:

• the escalating out-migration from many small towns associated with the withdrawal of services due to government and industry (eg banks) downsizing;
• the diminishing attachment of farmers to their local small service centres;
• improved transport that has facilitated out-shopping;
• the impacts of globalisation that have led to further centralisation of economic activity, and those of industry restructuring; and
• the secular decline in commodity prices.

These processes – which have only occurred in recent times or which have escalated in their impacts – have left smaller centres in a worse position than they were before, and place increased pressure on communities and governments to respond.

5. Key Drivers of Growth at the Local Level

Regional communities and regional development analysts are interested in identifying key growth drivers in local and regional economies. Identifying the drivers of growth is also of interest in the context of small town development strategies. In many ways, of course, the drivers of growth are the inverse of the factors leading to regional decline described above.

5.1 Characteristics of Local and Regional Economies

Local and regional economies have a number of characteristics which help determine growth drivers and also place constraints on growth. These include:

• regional economies are open, with growth and decline influenced by a wide range of internal as well as external factors;
• there is a high degree of interdependence between the different local and regional economies;
• local economic outcomes are largely determined by the operation of the market;
• history and geography, including the existing settlement pattern, provide constraints on local and regional economic performance;
• in a market economy, it is inevitable that growth will not be evenly distributed;
• migration of resources between regions is inevitable; and
• some towns are particularly advantaged by location, either through access to markets, raw materials and infrastructure; or through amenity (Source Jensen, Community Economic Analysis modules).

While small town economies may rely on the export of goods and services for their economic base, they are typically made up of small independently-owned businesses that focus on the local market. This is why the loss of population and services is felt so severely in small towns. Most firms in small towns employ fewer than five employees.

5.2 Explanations of Different Growth Rates and of Regional and Small Town Decline

The causes of regional disparities in investment, growth and employment levels between regions are complex. A number of these causes are suggested by the above analysis of longer-term demographic and structural trends.

5.2.1 Theory

Regional economic theory attempts to explain differences in regional growth rates, the causes of decline and the nature of the settlement pattern, and therefore sheds some light on the ongoing economic difficulties of small towns. Theories help explain the limitations on growth in regions and the structure of industries in regions.

Location theory explains why businesses choose to locate in certain areas. These theories focus on least cost models, market area models and profit maximising models. A wide range of factors determines business location decisions, including access to raw materials, labour, skills, support services and markets. Traditionally, transport costs have been important for some industry sectors. Locations seek to attract businesses for obvious reasons – they create direct jobs, as well as two kinds of indirect jobs (“multipliers”). These are jobs created by the existence of suppliers and service industries, and jobs created by the consumption needs of employees.

Agglomeration economies drive businesses to locate in proximity to one another, and the benefits of agglomeration economies are generally felt most in larger cities. Agglomeration economies help explain the growth of larger centres. Businesses receive both internal cost benefits and shared benefits by proximity to other firms.

The theory of growth poles holds that economic development is “lumpy”, or occurs unevenly across space. There are positive benefits of growth to regions surrounding growth “nodes” (so-called “spread” effects) as well as negative effects (so-called “backwash” effects). It is the latter that characterise the phenomenon now known as “sponge cities”, where growth is sucked away from smaller centres by the growth of larger centres.

Central place theory holds that the growth of a region or town relates to the demand for goods and services of its hinterland. Growth is therefore a function of size and income levels within the region. Generally the theory sees a hierarchy of “central places”, from villages to cities, each providing for different consumer needs. Central place theory is useful in explaining the size and spacing of settlements in a region.

Different levels of growth can be explained both by “supply side” factors and “demand side” factors. Supply side theories focus on the factor endowments of regions – their competitive advantages – while demand side theories seek an explanation of growth by analysing a region’s “economic base” or export base. Basic industries are those which provide income to the region from outside, and hence are key industries for regional growth.

Some theorists have talked about virtuous cycles of growth (and vicious cycles of decline). This has been termed “cumulative causation”, and explains why some locations suffer persistent decline while others continue to grow. Whatever the original drivers of growth in a region, growth will continue to occur in the “centre”, often at the expense of the “periphery”. This has been the case with many small towns, where out-migration has led to the loss of services and the closure of businesses, which in turn has led to further out-migration and a much more difficult development task for communities.

One of the contemporary theories that seeks to explain the ongoing difficulties of smaller towns has been referred to above by Powell as the new economic geography. This theory links the centralising effects of traditional agglomeration economies with the cost of transport in an explanation of the apparently increasing concentration of economic activity into larger cities (See Krugman quoted in Salant and Marx 1995: 33).

The above theories help explain how regional growth occurs and why some regions are more successful than others. Agglomeration economies result in lumpy economic growth across the space economy. Growth occurs around nodes. Business is attracted to larger market areas.

5.2.2 Perennial Constraints on Small Town Economic Growth

There are a number of constraints on the capacity of smaller regional communities to generate economic development. They include:

• Australia’s history and geography;
• the existing settlement pattern;
• the operation of the market – the choices of investors as to where they invest, and the choices of businesses and households as to where they locate;
• the impact over time of various government policies;
• the industry restructuring and centralisation of economic functions associated with globalisation and the increasing dominance of market forces; and
• the availability of local resources to derive development at the community level.

Australia’s settlement pattern and geography – the dry climate, poor soils in marginal areas, small population, large land mass, the existence of the Great Dividing Range, and the absence of navigable inland rivers – have shaped the current position of smaller regional communities, and have placed inevitable and major constraints on growth. According to Don Aitkin, “… to the historian, the geographer, and economist, the fate of country towns was almost pre-ordained” (Aitkin 1972: 11).

Just as Australia’s economic history and geography help explain the key features of the settlement pattern – the large degree of urbanisation and the dominance of primate cities – they also explain the absence of middle sized cities and the role of small towns as largely rural service centres for a predominantly commercially based farm economy with large holdings and a reliance on mechanisation.

Perhaps the causes of the lack of economic growth in many small towns can be reduced broadly to two – lack of scale and lack of diversity in the local economy. While diversity is not necessarily related to size – as shown by examples of relatively small towns with diverse economies such as Parkes and Mudgee – it is generally the case that large regional centres are marked by a broader economic base, and that this is a significant driver of growth.

It is generally accepted that there is a strong relationship between structural change and regional economic performance. The nature of smaller local economies magnifies the impact of structural change. As the Productivity Commission has noted:

Differences in the concentration and nature of economic activity across Australia affect the way structural change impacts on people living in different regions. One reason for this is that smaller and more remote regional towns are often relatively specialised – with activity centred on a handful of core industries – while metropolitan and strongly service-based non-metropolitan regions generally have more diversified industry bases. Hence, the closure of a major business in a small regional centre is likely to have a larger impact on the surrounding community than would the closure of a similar operation in a capital city (Productivity Commission 1999a: 21).

As essentially “branch plant economies”, smaller regional communities are particularly susceptible to shocks resulting from decisions made outside their regions.

The benefits of agglomeration economies are, by definition, not available to many small communities. Salant and Marx have noted:

Against this background, small, remote communities … often fall behind. Because of the size and density of such places, it is expensive to provide the transportation and communications infrastructure that firms need to get supplies in and products out fast enough to compete in today’s economy. It is also difficult for firms to access new information and innovations (Salant and Marx 1995: 34).

Equally, the increasing centralisation associated with globalisation has come about for two reasons – the costs of transactions across space (even though transport and communication costs have declined substantially) and the existence of economies of scale in production (Krugman quoted in Salant and Marx 1995: 33).

Theory and history help explain the limits of growth in smaller economies. They do not, however, mean that smaller centres should give up on economic development.

5.2.3 Specific Causes of Recent Small Town Decline in Australia

While economic theory, history and geography help explain the reasons for regional growth and decline, there are a number of specific causes of recent small town decline that have been identified in the Australian context.

For example, the ABA (1998) has identified a number of common denominators among towns that have experienced at least 20% population loss since 1976. They included the following:

• based on a depleted local mineral resource;
• based on local manufacturing in which advances in production methods have reduced the scale of the workforce required;
• based on a manufacturing activity that is no longer required in the local region;
• located in the wheat-sheep belt where there are natural economies of scale that have encouraged farm aggregation;
• located within a convenient drive time of a provincial city which offers services, employment and education and training;
• mining operations that have switched to fly-in fly-out operations;
• located within a broader urban area which has experienced ageing of the local community or changing land use; and
• physically isolated from the main highway systems and formerly based on timber milling, small scale farming or with a narrow sphere of economic influence over its immediate region (ABA 1998: 25-26).

The ABA study identifies a number of the economic drivers of decline among those centres that have fared worst in the last twenty years, highlighting the difficulties that many towns face. Many of these drivers are external to the region concerned and underline the size of the local development challenge.

5.3 Key Local Economic Development Success Factors

Successful regional communities typically have strong local leadership teams, active economic development practitioners and an understanding of the changing requirements of economic development practice in the new economy. There are also a number of strategic choices and challenges facing local communities seeking to strengthen their economies.

5.3.1 Local leadership

The role of local leadership is accepted as a key driver of regional economic performance. Leadership is especially important in smaller communities which often lack infrastructure, skills and resources for economic development.

The McKinsey Report (1994) asserted that regional leadership was the key factor in regional development. Its 1996 follow-up report lamented the lack of action by the Commonwealth in pursuing effectively its earlier entreaties on regional leadership, in particular in the seeding of world-class regional leadership teams and the creation of a learning environment for regions.

McKinsey’s conviction that local and regional leadership is the key to successful regional development is well-known:

Given the task of rejuvenating a region and the choice of $50 million, or $2 million and 20 committed local leaders, we would choose the smaller amount of money and the committed local leaders (McKinsey 1994: 8).

Other studies (eg NSW Legislative Council Standing Committee on State Development 1994) agreed with the McKinsey view of the importance of regional leadership and argued the need for regional leadership to be supported and nurtured.

One of the tenets of community economic development is that community action can make a substantial difference to economic outcomes at the local level. On this view, the role of leadership is central.

McKinsey was concerned both with business leadership and community leadership. The report also explored to some extent the nature of leadership and the means of nurturing it. The report argued that community leadership could make an impact because leaders could influence many of the factors “... critical to a world-class investment environment ...”, including local workforce skills and attitudes, reducing red tape, a supportive local business community, the availability of venture capital and the locality’s amenity (McKinsey 1994: 25).

Who are leaders in the local and regional development context? What do they do?

McKinsey stressed the importance of a leadership group, not just individuals. Leaders were people drawn from all parts of the community. They could “make change happen”, could change attitudes. The leadership group may be formally organised or not. For McKinsey, leadership is not “... a secret art. It is a discipline that can be taught and learnt. Effective leadership has less to do with inherent personal qualities than with a major commitment to action” (McKinsey 1994: 30). McKinsey’s “6 key actions” for leaders are creating vision, forming a leadership team, taking symbolic actions, breaking bottlenecks, establishing tough but achievable goals, and leveraging community interest (McKinsey 1994: 32).

The NSW Standing Committee on State Development in a 1994 inquiry also addressed the question of leadership. The Committee defined regional leadership tasks as including:

• the identification of a region’s competitive advantages;
• the creation of an economic vision for the region;
• uniting the various interests in the region in pursuit of the vision;
• the assignment of specific tasks to the key players to ensure that the vision is achieved; and
• the promotion of the region to the outside world (1994: 42).

There are clearly common elements with the McKinsey analysis, and the Committee’s leadership “task list” has been adopted by practitioners such as Peter Kenyon in Western Australia.

Epps and Sorensen have undertaken important empirical work in Queensland on the nature of community leadership. They identified four key leadership functions, which they describe as being “more pragmatic” than those posited by the McKinsey report:

• formulate a realistic vision of the community’s economic and social development;
• achieve a high level of community acceptance of, if not active commitment to, the vision;
• motivate key community business-persons, administrators and social activists to work systematically and in a coordinated way towards the vision; and
• lead by example (Epps and Sorensen 1995: 45).

They also identify key personal attributes of leaders - intelligence, knowledge, respect, resources, energy, originality, persuasiveness and synoptic thinking - and concluded that few individual leaders possessed most of these qualities. They were particularly disappointed in the absence of original and synoptic thinking, though the leaders studied were generally found to be intelligent, energetic, capable of earning respect and quite knowledgeable. If Epps and Sorensen’s conclusions are correct, this provides a pessimistic outlook for inland regional Australia (Epps and Sorensen 1995: 46).

The Fulop and Brennan study of regional development organisations (RDOs) discussed the question of leadership. Personal qualities of leaders were said to include the following:

Expansive; intelligent; dynamic; good balance between political experience or ability and energy; committed; focused; good knowledge of region; strong leader; understands everything going on; strong and talented; high profile and productive; strong and vital character; been able to attract best leaders; understands people and political processes; strong and sometimes autocratic; fair but not always seen this way; visionary; can see “big picture”.

On the negative side, the following comments were made:

Difficult to find good people; chair has a public servant approach; lack of private sector leaders; biased to one part of region; leads and controls; conflict between chair and executive officer; chair offers lip service and not backed by REDO or his organisation; not enough leadership training; poor skills at chairing meetings; confusion in roles as to who is leader; team effort not encouraged; leadership not extending beyond formal meetings; leadership not respected; chair not forceful enough; executive does not set direction; and executive officer given too much latitude (Fulop and Brennan 1997: 53).

While these are some of the practical realities of the regional leadership scene, there are other views of the leadership task. Leadership is often seen in terms of change management and leading change, and is linked to the success of regions at a time of great change. It is the conventional wisdom that for regions to sustain themselves and prosper, they must embrace globalisation and change. Garlick states that ‘places in the global economy will not survive unless their businesses and institutions are linked to the global economy” (Garlick 1997: 34).

Garlick, quoting studies by Gray and Stewart, states that good leadership in regional communities faces a cross-sectoral and cross-institutional context which requires skills in building collaborative partners and ‘... being seen by the community to be an honest broker” (Garlick 1998: 49).

Garlick (1998) has argued that it takes time to build a community leadership team that is based on collaboration and cooperation. Garlick states:

Issues of competitive interests between regional community stakeholders (political and sectoral allegiances) are key impediments to developing an enterprising community with a bias to action (Garlick 1998: 49).

Fulop and Brennan set out some of the challenges facing regional leaders, in their study of RDOs. Key difficulties included funding uncertainty, a lack of recognition of regional leaders’ achievements, too few resources, expectations of achievement in an unrealistic timeframe, maintaining enthusiasm in an uncertain climate, too much focus on survival, political interference (Fulop and Brennan 1997: 47-54).

While this study focused on leaders of a particular kind of RDO in a particular political context - the removal of the Regional Development Program by the Howard Government - the study does point to more general difficulties experienced by regional leaders.

5.3.2 The Role of Economic Development Practitioners

The role of economic development practitioners is critical to the success of small regional communities.

The role of local economic development practitioners has become important in the 1990s in driving investment. There are now a large number of locally and regionally based organisations dedicated to enhancing the performance of regional communities. They have a variety of management structures, jurisdictions and funding sources.

There are many different positions occupied by development practitioners - public servants located in regional offices with an economic development function, executive and project officers for RDOs (regional development boards, etc), local government economic development officers, Main Street Program coordinators and committee members, Business Enterprise Centre employees, employees of regional organisations of councils, executive officers of town development corporations and Area Consultative Committees.

To whom are practitioners responsible? Again, there are many kinds of funding organisations, and an even wider range of “stakeholder” interests, including State Governments, local councils or voluntary organisations of councils, community groups and elected boards. Beer in his study (1996) of RDOs identified 460 local economic development bodies to whom he sent questionnaires in his study.

One of the interesting things Beer discovered was how relatively recent most RDOs were formed, underlining the relative youth of the economic development profession. Of the 183 responses that Beer obtained, 131 were from organisations which had been formed since 1990. The number of RDOs swelled considerably during the time of the Keating Government’s Regional Development Program.

It is readily apparent that economic development practitioners need both wide and deep skills and knowledge in what is an emerging profession. They come from a variety of backgrounds, draw upon a wide range of resources and serve a plethora of interested stakeholders.

Monks has noted that most practitioners work for some kind of RDO, and there are many similarities in what RDOs do:

The management characteristics of RDOs are similar - a voluntary board or committee, small staff numbers with varying professional backgrounds, limited and insecure funding with few options to increase that income, and a character that is neither like government nor business. In addition, they have a large, public-spirited task which the private sector would never undertake on its own: maintenance or expansion of a regional economy (Monks 1993: 2).

In his study of the development practitioner’s art, Beer has identified the core activities of regional development organisations. These activities included (in descending order of importance) business development, regional economic development, local government, accessing funds for development, self employment/business creation, business attraction, labour market programs, coordination/liaison, region promotion, strategic planning, infrastructure, information provision, tourism programs, lobbying, administration and provision of advice to the community (Beer 1996: 6).

Beer noted that there was a surprising degree of convergence of activities despite the diverse nature of economic development organisations (Beer 1996: 6).

Beer’s study also identified the range of activities in which practitioners operate, beyond the core activities listed above. They were grouped under the categories of marketing the region, firm recruitment, business development, information, rural assistance and tourism and other activities. They included, again in descending order, organising business forums, facilitating business growth through coordination, coordinating public sector agencies to support business development, small business development, business management advice, marketing information, local employment creation programs, developing tourism facilities, tourism promotion, finding land to attract new businesses and mentoring. There were many other activities identified by Beer, but these were the most common (Beer 1996: 7).

Ed Blakely suggested the following as key activities of the economic development practitioner:

• research - to assess community economic and social needs;
• planning - to organise people and information, and set goals and priorities;
• management - to develop and promote specific projects involving public-private partnerships; and
• leadership - to facilitate the effective functioning of the local development board or commission as well as lead staff (Blakely 1989: 256).

Local economic developers have a number of “tools” or analytical techniques available to them in understanding their local economies and in driving growth. The judicious use of such tools can ensure that local development efforts are focused to achieve development outcomes that are of benefit to the community. They provide context for the day-to-day investment attraction activities of regional development bodies. The community economic analysis tools available include the following:

• Australian Bureau of Statistics information and community profiles for Local Government Areas (LGAs);
• economic impact analysis, ie the measurement of job multipliers, for use in assessing how many jobs a new industry or business will bring to a community, or the impact of a policy decision or the loss of a business or industry;
• the use of input-output tables to determine the industry structure of the local economy;
  
• various project evaluation techniques, such as cost-benefit analysis;
• location quotients and shift-share analysis;
• the use of business surveys to ascertain local business gaps and needs;
• various community workshop exercises, eg future search, visioning.

It is important that local practitioners understand the tools that are available and how they can be used to better direct economic development efforts.

The effectiveness of local economic development efforts has been questioned by some observers.

One area of concern about regional development bodies is their multiplicity. Each region tends to have a host of bodies whose primary aim is to foster local or regional economic development. The tendency for many institutions to emerge has been a source of considerable debate, with doubts about the effectiveness of the various bodies and concerns about duplication of effort, parochialism, competition for recognition and leader “burnout”.

There is also the question of whether the resources available to local economic development groups are sufficient to match the size of their task.

In view of the multiplicity of organisations involved, it is important that a sense of partnership be fostered among groups concerned with development.

5.3.3 The Changing Nature of the Local Economic Development Task

A number of commentators have noted the changing nature of the local economic development challenge over the last decade or more, and the imperatives of the “new economy”.

These changes have important implications for local leaders, economic developers and for smaller communities. The impact of globalisation has been pervasive, and has been discussed above.

One commentator, John Sanzone, has contrasted the requirements of old-style local economic development with the new economy and spoke of the pitfalls of economic development (Sanzone 1993).

The nature of the local leadership task has changed.

Luke et al have talked about “catalytic leadership” as the key to successful economic development (Luke et al 1988: 225), and the need for new skills to meet the very different requirements of the new economic development game. Strategic thinking is at the core of the economic development task in the new economy. Luke et al focus on human skills, conceptual skills and technical skills, and argue that:

The experience and working knowledge of the seasoned economic development manager are increasingly ineffective and, in many ways, even detrimental when applied to the new interconnected economic context.

... Managing economic development strategically in an interconnected web of community stakeholders, business managers, non profit agencies, government departments, and multinational corporations requires catalytic leadership skills.

... The relevant skills are primarily interpersonal and cognitive and secondarily technical in nature (Luke et al 1988: 227-29).

Human skills include collaborating, negotiating and networking. Conceptual skills are primarily about strategic thinking, and technical skills involve understanding available financing tools for development. Strategic thinking in the economic development context is about understanding “... the broad relationships between the historically separate and distinct policy areas of transportation, commerce, land use planning, and post-secondary education” (Luke et al 1988: 229). Strategic thinking embraces policy linkages, information needs, considering all stakeholders, developing a mix of strategies, and preparing for unintended consequences (Luke et al 1988: 237).

Further consideration has been given to the new catalytic leadership in the concept of “civic entrepreneurship”. In their book, Grassroots Leaders for a New Economy, Henton et al focus on the benefits of collaboration among key regional leaders and stakeholders. Their focus is on a number of regions in the USA which have revitalised their economic fortunes by what the authors regard as a fundamentally new type of leadership.

According to Henton et al, the world has changed and this requires new economic development skills. For example, they see the new economy - which is global, complex and fast-changing - demanding more collective leadership skills than the old individual charismatic leadership model (Henton et al 1997: 34).

Civic entrepreneurs, according to Henton et al, are risk takers who are not afraid of failure, and have vision, courage and energy. Civic entrepreneurs have five common traits:

• they see opportunity in the new economy;
• they possess an entrepreneurial personality;
• they provide collaborative leadership to connect the economy and the community;
• they are motivated by broad, enlightened, long-term interests; and
• they work in teams, playing complementary roles (Henton et al 1997: 34)

Civic entrepreneurs come from many fields, including business, government, education and the community sector. They need not have formal power or authority, and achieve influence through their credibility (Henton et al 1997: 35).

Civic entrepreneurs are essentially community change agents and this requires “multiple talents” (Henton et al 1997: 36). It is leadership for the long haul. “They lead their communities through fundamental change and improvement processes that have no quick fixes” (Henton et al 1997: 52).

The analysis by Henton et al is important because it highlights the ways in which the leadership and economic development task has changed. This has important implications for the nature of the skills development challenge.

5.3.4 Challenges and Choices in Formulating Economic Development Strategies

Governments, local leaders and development practitioners face a number of important choices in formulating development strategies, particularly in smaller communities. Communities have finite resources at their disposal for economic development projects and some difficult choices.

One of the important choices is whether to pursue outside investment and business relocations (“hunting”) or indigenous investment and new local start-ups (“gardening”). The McKinsey report (1994) stated that up to 70% of new regional investment comes from existing local enterprises. While many economic development agencies recognise this, most still pursue outside industries in order to create new investment.

A second key issue is whether to diversify the local economy or to build on existing competitive strengths. The former approach seeks to protect the community by broadening its economic base, thereby insulating the economy from external shocks. The latter strategy focuses on expanding indigenous enterprises, plugging gaps in “value chains” in the economy, adding value to existing production processes, and creating clusters within the locality’s already strongly performed industries. While both approaches have obvious merits, they can only be pursued simultaneously to a limited degree due to a lack of resources.

Those involved professionally in local economic development have daunting challenges in the attempts to drive local development.

Practitioners in regional development face a wide range of challenges - working in isolation, working in a relatively new and still emerging field, the almost universal shortage of resources, lack of support, funding uncertainty, lack of tenure, political instability, and the need to possess a very broad range of skills.

There is legitimate debate - perhaps at the heart of local and regional economic development efforts - about how much difference local leadership and practitioner effort can actually make to the development success of a region in view of the very large global challenges which shape regional development outcomes. Beer has dealt with this issue of whether practitioners make a difference.

The study of RDOs by Fulop and Brennan discovered a number of specific difficulties faced by RDO executives:

• funding cuts;
• the politics of regional development;
• different agendas of stakeholders;
• membership problems on boards;
• being spread too thinly - the lack of funds and resources in relation to the size of the task;
• bureaucratic processes of governments;
• problems with stakeholder commitment in the light of funding cuts;
• the loss of credibility following funding cuts;
• high expectations of members; and
• parochialism at local and regional levels (Fulop and Brennan 1997: 32).

As Fulop and Brennan point out, many of these difficulties are common to all regional development bodies, hence to all practitioners. The study also details many of the mistakes that practitioners thought they had made in the RDO program.

The challenges for local leaders are equally daunting. The Department of Commerce and Trade (Western Australia) has identified a number of problems for regional leaders:

• the small pool of leaders who continue to be pressed to be involved with multiple groups, and hence suffer dissipation of effort;
• demands of full-time work and time commitments;
• changes in attitude for young people and others regarding community service;
• apathy and a lack of interest in becoming involved;
• the aging of leaders; and
• the lack of diversity in leaders (Department of Commerce and Trade 1999: 16).

The question is raised - is it getting harder for regional leaders just at the time where, seemingly, their contributions and skills are needed most? There are a number of factors which militate against the development of regional leaders at this time:

• the out-migration of youth, particularly from small, inland centres, who take with them energy and fresh ideas, and the relative non-involvement of some groups in economic development (it is noticeable that regional leaders are often white-haired males, even if many “practitioners” are relatively young);
• the absence of new ideas coming into declining communities;
• the apparent inherent conservatism of small rural communities which militates against new and different ideas;
• there is less support for leaders in communities that are in decline;
• regional people who are doing it tough in their own lives and businesses have less time to devote to community projects;
• the political instability inherent at Commonwealth level where the two sides of politics have fundamentally different agendas in relation to regional development organisations - this has led to uncertainty of funding and a primary focus on attracting money (or “chook raffles to pay the rent” as the McKinsey report states - McKinsey 1996: 32), the termination of many RDOs before they had a chance to prove themselves, and the possible alienation of leaders and potential leaders who may well refuse to become involved in regional development because of the uncertain political climate; and
• the removal of government and other services from declining communities, whether justified or not on other grounds, has the effect of removing professional skills from communities. Often it is the professionals who work for government agencies, banks, and so on, who provide some of the ideas and drive in the community.

4.3.5 Strategies for Success

A number of regional development experts have addressed the issue of what it takes for regional communities to be successful. While there is no one single recipe for success, there are a number of recurring themes developed in the literature and among development practitioners.

According to Peter Kenyon, the following are important to building economically successful communities:

• focusing on healthy and sustainable community behaviours;
• investing in local leadership development;
• fostering diverse but inclusive citizen involvement;
• encouraging youth participation; and
• committing.

Strategic planning and the development of a community agenda are critical. Kenyon sees the following elements as central to the strategic planning process:

• shared vision;
• realistic objectives;
• regular achievements;
• short, medium and long term plans;
• a clear marketable identity; and
• an appropriate development organisation / group.

Kenyon’s general advice to communities is as follows:

• develop a comprehensive strategic community economic development agenda;
• recognise the importance of local business vitality through actions of appreciation and support;
• become a best practice culture;
• be opportunity obsessive;
• forge partnerships with neighbouring communities for collaboration and peer learning; and
• maintain enthusiasm, passion, hope, involvement, belief and expectation (Kenyon 1998).

According to Philip Burgess, there are seven action strategies for the creation of what he has termed “high performance communities” (see section below). These are:

• ensure the rapid deployment of modern telecomputing capacity;
• promote entrepreneurship;
• promote job growth from within;
• promote awareness, interest and participation in the global market place;
• focus on industry clusters that combine producers and suppliers and encourage local competition among producers and among suppliers;
• foster interfirm collaboration: and
• cultivate civic institutions and regional collaboration (Burgess 1996).

One of the keys to local success in economic development in the 1990s is to avoid the pitfalls of traditional approaches that are no longer applicable. According to US expert John Sanzone, these include the following:

• not taking enough time to “envision” limits regional opportunities;
• expecting immediate results will produce unrealistic plans that are designed for unrealistic expectations;
• local economic development capacity on the cheap does not work;
• not realistically inventorying your regional assets and liabilities misdirects good intentions;
• targeting jobs and not human resources misses the point;
• following economic development “folklore” will lead to regional disappointment;
• thinking that new jobs will necessarily lead to employment of local people;
• plans that do not have clear, measurable and agreed upon goals usually fail;
• not fully knowing your economic base leads to faulty assumptions and poor planning;
• overlooking development capacity (Sanzone 1993).

One of Sanzone’s 10 pitfalls relates to the differences between local economic development folklore and the realities of the new economy. For example, Sanzone disputes the assumption that local governments can greatly influence private sector local decisions. This is largely not the case. The assumption that tax and financial incentives attract business, is also misplaced. The availability of land, a skilled labour force, infrastructure, quality of life and public services are argued by Sanzone to much more important. Large firms do not create most new employment opportunities. Existing small firms create most new opportunities. Financial assistance is much more important for small firms than for large firms (Sanzone 1993: 9).

Sanzone argues that:

• retaining and cultivating small local businesses are the two keys to economic health;
• outbidding the competition is not an effective economic development strategy;
• investing in the existing workforce is critical;
• quality of life factors are more important than marketing incentives or recruiting; and
• developing the capacity to attract and nurture advanced technology jobs and investments will pay off in the long run (Sanzone 1993: 10).

Finally, according to Sanzone:

… the success of a local development strategy will rest on a long-term commitment by a sustained coalition of local public officials, the private sector, and citizen groups (Sanzone 1993: 11).

Sanzone’s analysis conforms to the standard current thinking (and the NSW Government’s approach) on local economic development, in that partnerships and community involvement are critical to success.

Analyses of DSRD’s Main Street/Small Towns Program have also uncovered success factors in local economic development that have relevance for many smaller communities in regional New South Wales. Particular success factors have been found to be:

• community ownership of the planning process;
• commitment to working in partnership with other local organisations;
• commitment to funding the program locally;
• local council support and involvement;
• an active committee with broad representation from local government, business and community groups;
• local leadership;
• broad community support for the local program;
• knowing the local economy;
• focusing on the retention and expansion of existing businesses rather than attempting to attract large employers;
• a realistic strategic plan developed through a public consultation process;
• detailed action plans;
• a human resource commitment to implementing the strategic plan;
• monitoring progress and ongoing evaluation;
• keeping people informed, particularly through positive media coverage;
• acknowledging and celebrating successes.

Anderson (1997) has also commented on lessons to be learned from the Main Street/Small Towns Program. She concludes:

• community empowerment and ownership are at the heart of these programs;
• committees need to have a high profile in their community;
• there must be strong leadership;
• shared leadership is extremely successful;
• communities need to start to plan, right at the beginning, for long term sustainability of their programs;
• coordinators are there to do the coordinating, not all the doing;
• coordinators are traditionally underpaid for an extremely complex task, they perform better if they are properly remunerated;
• businesses must contribute financially to the program, otherwise they do not value what they get for nothing;
• the best long term sustainable strategy appears to be a local levy;
• the Strategic Plan needs to be working document that is constantly referred to and reviewed;
• participants need to be recognised for their contributions;
• the most successful programs are those that retain a sense of fun (Anderson 1997: 84).

While these success factors directly relate to particular programs, they are clealy relevant for many community economic development efforts across the State.

According to Vicki Dickman, a Queensland rural leader, the following are the key ingredients to success in community economic development:

• a commitment to the future and the dedication to be involved in developing that future;
• the involvement of the community in the generation of the vision and in the development of projects;
• a team of leaders to drive the projects and to act as mentors for less experienced project group members;
• the establishment of a community based group which coordinates project activities and acts as a legal entity for the project groups;
• develop a culture of information sharing and develop the activity of networking as a priority for project groups;
• the establishment of a support structure for project group members to allow them to access training, information and encouragement (Dickman 1997: 4).

The above analysts and practitioners provide a range of perspectives on local economic development that are relevant to small regional communities in New South Wales. In summary, the following elements appear to be critical to the success of local economic development:

• the creation and maintenance of a dynamic business environment that positively welcomes new investment;
• working to the centre’s competitive strengths while broadening the economic base;
• developing and supporting local leadership;
• the development of a positive attitude to change;
• a willingness to be creative in securing new investment opportunities;
• the entrepreneurial flair of local businesses;
• the capacity to add value to existing products and services;
• critical mass achieved through networks and cooperation.

Many of these success factors are within the control of the local community, and are reliant on the mobilisation of existing community resources.

5.3.6 Characteristics of “Viable Communities”

What are the economic development objectives of small regional communities? Typically, communities wish to sustain their populations, to prevent out-migration, particularly of their youth, to develop a diverse economy that will insure the community against decline, to have the capacity to provide decent jobs for those who wish to stay in the community, and to maintain an adequate level of services and quality of life for residents. Government shares these community aspirations.

Different terms have been used to describe the aspirations of small communities to survive and prosper in the face of both internally and externally generated pressures. Typically communities aspire to “sustainable” development, or growth that is built on solid foundations (businesses, industries) and that will last into the future.

The AHURI study talked about “communities of opportunity” and “communities of vulnerability”, depending on a community’s position in relation to a number of structural and socio-economic measures. A community of opportunity has the following characteristics:

• above average employment growth;
• decreasing unemployment;
• above average growth in high income households;
• a high percentage of people in growth occupations;
• a high percentage in growth industries;
• a high percentage of high income households;
• skills commensurate with the industry and occupational structure;
• low unemployment and a high participation rate;
• a low level of disadvantaged families;
• positive population change; and
• low incidence of public housing (AHURI 1999: 11).

The AHURI list of characteristics is a good summary of the kinds of characteristics to which small communities aspire.

US analyst Ron Shaffer’s notion of an economically viable community is helpful in clarifying the aspirations of communities. According to Shaffer:

Viability is the ability to survive and to pursue the face of changing circumstances. Community economic viability is the capacity of local socio-economic systems to generate employment and income to maintain, if not improve, the community’s relative economic position. Economically viable communities possess the capacity to perceive changing socio-economic circumstances and to respond appropriately. Community viability has political, social, physical dimensions (Shaffer 1989: 13).

Shaffer has note four characteristics of economically viable communities:

• a slight level of dissatisfaction;
• a positive attitude towards experimentation;
• a high level of intra-community discussion;
• a history of implementation (1989: 14).

In other words, communities need to be aware of the dimensions of change in the new economy and the need to be pro-active, even in times of relative economic well-being.

Similarly, Phillip Burgess has talked about what he terms “high performance communities”. These communities have a number of characteristics. They are, according to Burgess, “fast, flexible, customised, networked and global”. As Burgess states:

… a high performance community is a place that provides business enterprises that have a future, more per capita wealth for the community, strong and healthy voluntary associations and a user-friendly government that responds and values citizen involvement. It is a community animated by a vision where per capita income increases (increasing wealth); enterprises become more productive (increasing competitiveness); and social, economic and political values are broadly shared (increasing equity) (Burgess 1996: 2).

5.4 Examples of Successful Small Communities in New South Wales

While there has been justifiable attention paid in recent years to the decline of small towns, there has also been considerable conjecture about the extent of the problem of small town decline. A number of reports and commentators have noted that many small towns are not in decline, but are in fact growing.

A number of recent media reports and studies have highlighted widening regional disparities in New South Wales/Australia, with the rural/urban divide across a number of economic and social indicators being singled out for particular attention. Commentators have noted that globalisation has led to increased wealth and job opportunities for cities with non-metropolitan regions often lagging behind.

This increased media focus on regional disparities and on “two nations” has tended to obscure the existence of positive stories about regional development, and has provided a misleading impression of regional growth prospects.

Negative perceptions of conditions in regional New South Wales are often inaccurate or exaggerated, and make it more difficult for regional locations to attract new investment. These perceptions need to be countered by a more accurate description of regional growth prospects.

Regional community representatives, too, are aware of the need to not exaggerate the problems of their communities for fear of lessening their attractiveness as investment destinations.

Which towns are doing well?

A number of smaller centres, including inland centres, have performed strongly against the general trends in regional New South Wales noted above. Three of the best examples of growing centres/areas are Mudgee, Parkes and Cabonne Shire.

Mudgee

• Mudgee had a strong average annual population growth rate of 0.91% between 1991 and 1996.
• Mudgee’s current unemployment rate is 5.6%
• The region has a diverse economic base which contributes to its strong position, despite the fact that it is not on any major transport corridors. The town’s strengths include agriculture, mining, viticulture, tourism, and, increasingly, regional cuisine.
• The Mudgee region has 2 000 hectares of vines with an investment of $100m and over 20 wineries in the area.
• Recent projects include the expansion of the Cudgegong Abattoir, with an investment of $9m and 120 full time (and 40 part time) jobs; and Simon Gilbert Wines’ new plantings and wine making facilities, an investment worth $4.5m with 9 full time and 20 part time jobs.

Parkes

• Parkes’ population grew on average by a strong 1.33% between 1991 and 1996.
• Parkes’ current unemployment rate is a low 5.5%.
• Parkes has built on its locational strengths to become an intermodal freight hub. FCL Interstate Transport Services has made a $7.6m investment in Parkes and Blayney, with over 40 jobs in the two locations. The development of an extensive intermodal distribution system gives Parkes and Blayney a competitive advantage as locations for new industry development and the attraction of firms requiring national logistical capability. The Parkes facility offers double-stack container services to Perth and the ability to access 85% of the Australian market within 24 hours.

Cabonne Shire

Cabonne Shire in the State’s Central West has a number of villages which together have developed an economic development strategy (Vision 2007) to achieve sustainable development and growth. The villages are Canowindra, Cargo, Cudal, Cumnock, Eugowra, Manildra, Molong and Yeoval.

Through the work of Small Towns Development Officer, Joy Engelman – funded through DSRD’s Main Street / Small Towns Program (see below) with local council contributions – the villages have united under the Cabonne Country banner and have focused on the area’s economic strengths.

The Cabonne Vision 2007 has recently won two regional development awards, and the population of the villages has been increasing.

The recent AHURI study also examined successful small towns, what it termed “communities of opportunity”. Among the smaller centres in New South Wales, AHURI identified Cooma, Yarrowlumla (Bungendore), Yass, Blayney, Oberon and Scone as communities of opportunity (AHURI 1999).

5.5 Small Towns and Information Technology and Telecommunications

As Salant and Marx have noted, “[i]nformation is one of the most powerful forces that drives the integrated economy” (Salant and Marx 1995: 37).

Regional communities in New South Wales and elsewhere are increasingly recognising the opportunities provided by the technology of the new economy, and the imperatives of going online. There are also a number of threats posed to traditional industries and production processes in small towns by the information revolution. Small communities need to be mindful of both the threats and challenges.

While the new technology should not be seen as a panacea for regional communities, it is important that they are aware of the new opportunities available for businesses, particularly in export.

The impact of technological advances on smaller rural communities is summed up well by Salant and Marx:

Advanced information technology offers small communities the chance to reduce some of the disadvantages that come with low population density and distance from cities, without becoming more urban or sacrificing quality of life. It can allow firms to locate in rural places less expensively and more efficiently. Further, it can improve competitiveness by giving rural firms direct access to customers and tying them into information about markets, suppliers, technology and government regulations. Finally, information technology can help improve rural quality of life by letting small towns import services like health care and education.

At the same time, information technology has a negative side for rural places. It exposes more remote and smaller firms to competition from those that are centrally located and can benefit from economies of scale. Also, it has enabled some firms to centralize decision making operations in cities, and others to move branch offices and plants to off-shore locations (Salant and Marx 1995: 8).

Despite the many positive developments in the use of technology by regional communities, there are substantial IT&T infrastructure challenges. In particular, issues of cost, access to the reliable and fast services taken for granted by metropolitan businesses and communities and training are of major concern in regional areas, particularly in smaller and more remote communities. These matters are largely the concern of the Commonwealth.

6. The Role of Government and Communities in Driving Local Development

According to one observer, writing in the 1970s:

Small country towns are not going to survive without commitment to them by all levels of government (Murray 1979: 2).

There are a number of reasons why governments are concerned about regional development generally, and about the economic development needs of small towns in particular. Three arguments for regional policies stand out:

• Economic arguments – strong State and national economies rely on strongly performing local and regional economies. Increasing local and regional output will increase State and national output and optimise the utilisation of existing infrastructure and labour. On the other hand, under-performing regions hold back the national economy.
• Social or equity arguments – there is evidence of widening disparities across a number of economic and social indicators (eg the Vinson report, the Country Matters Social Atlas of Rural and Regional Australia, the Productivity Commission Report on the Impacts of Competition Policy Reform on Rural and Regional Australia, the ABS Socio-Economic Indices for Areas, SEIFA) between and within regions, particularly between metropolitan and non-metropolitan regions.
• Areas of disparity include income levels; employment opportunities; unemployment levels; access to medical facilities and services; relative lack of educational attainment in non-metropolitan regions; health outcomes; infrastructure; IT&T access and higher costs in regions. The loss of “social capital” and the need to build communities have been commented on by a number of observers. The argument has been made that economic development in communities requires healthy communities in the first place. Equity is particularly an issue in relation to services, and is an issue especially for small towns.
• Political or stability arguments – widening disparities have led to a perception of alienation among regional communities and growing disillusion with the political process in some areas. Increased regional alienation is seen as bad for the political system and for society generally.

For these reasons, and others (eg defence and environmental), governments have sought to increase economic activity away from the metropolitan area, including in small regional communities.

6.1 The Role of State and National Governments

Regional development policies at State and national levels in Australia have evolved over the last twenty years from top-down to bottom-up approaches, with an increasing focus on regional competitive advantage, leadership at the local and regional level, partnerships between governments and stakeholders in the delivery of programs, and increased community involvement.

Evolving program approaches have been heavily influenced by - among other things - the perceived failure of previous policies, a reassessment of the role of government in economic development generally and of the capacity of governments to shape regional economic outcomes, changes in the regional economic landscape, and the influence of evolving international approaches in community and local economic development.

Governments have an important role to play in working with communities to ensure they adopt a strategic approach to economic development, and in providing regional communities with some of the tools to overcome the considerable challenges they face.

Local and regional economic development is now mainly in the hands of local communities and regions. For a number of reasons, Australian governments have largely handed responsibility to local communities and have come to adopt a “facilitative” role. Community “ownership” of problems and solutions is stressed, and indeed Government funding for some community development programs is only provided on the basis of an equal cash contribution from the local community.

A key premise of current thinking about community and regional development is that, despite the increasing degree to which economic outcomes are determined by global events, local community action can make a difference. This in turn assumes that communities are capable of driving economic development - that they are equipped to handle their responsibilities in economic development.

It is against this background of regions and communities seeking to meet and overcome serious challenges to their economic well being that current government policy approaches must be considered. And at a time when regions must respond to the challenges they face, the role of government itself is changing. Governments operate today in a fundamentally altered environment in which old solutions to old problems are no longer considered appropriate.

In former times, regional development policies were primarily concerned with improving the economic condition of country areas generally in relation to metropolitan areas. Policy instruments such as growth centres and substantial tax breaks for country industries attempted to entice people and industries away from Sydney, often in a “scatter gun” way.

Policies have changed substantially, for at least two reasons. First, governments became convinced that both blanket decentralisation policies and selective growth centres programs did not work, principally because they went against market trends. They were also thought to be less necessary as Sydney’s earlier rapid growth began to slow. Second, governments have increasingly had to deal with more complex regional issues that demand more sophisticated solutions than simply diverting industry and people from the metropolis.

There was a time when governments sought to change the fundamental drivers of economic activity in regional areas. Those days are long gone. Governments have come to realise that the key drivers of local economic development are international and local rather than State or national, and that State Governments in particular have only a limited capacity to shape regional economic development outcomes. Governments have also recognised that local communities can dramatically improve their economic performance through local actions, and that most new regional jobs come from existing businesses (see, for example, McKinsey 1994: 35; the McKinsey report claimed that up to 70 per cent of investment in Australia’s regions came from existing businesses).

The role of government in regional development in the 1990s is essentially one of facilitation. Government can best achieve regional policy objectives by acting as a catalyst, with the regions themselves driving change. On the other hand, Government must also continue to provide essential infrastructure for regional communities and deliver services that are accessible and maintain the regional quality of life.

Regional development is not the sole preserve of State Government, nor of local councils, nor of regional development boards, nor of Regional Development organisations, nor of Regional Organisations of Councils. Regional development is about partnership, about utilising all the resources available in a region, about thinking strategically and regionally, and about leadership.

Partnerships are important because the Government on its own does not have the resources to deliver regional prosperity, and because within regions parochialism and politics can stifle cooperation and innovation.

Encouraging leadership at the regional level is critical. Regional leaders, whether through regional boards, local government, development bodies and Main Street committees, can energise their communities in the pursuit of strategic investment opportunities. Leaders can mobilise a range of resources and enthuse their regions. Leaders can leverage opportunities provided through a wide source of funding mechanisms. Leaders can create vision at the local level and formulate strategies for survival.

The challenge, for government and communities, is to face the new environment realistically with a mindset focused on overcoming difficulties.

6.2 The Role of Local Government in Regional Development

Local Government plays a key role in c