Australia Economy and regeneration , Housing and planning

Opportunities for local government to catalyse inclusive and sustainable economic transitions

Summary

In this introductory briefing, Dr Anne Tiernan explores the ideas and identifies the opportunity context that presents for local governments to catalyse and drive inclusive, sustainable economic growth, to build on and leverage their strengths, and to attract and retain investment in their communities and places.

This series of briefings will address the nexus between governance and economic recovery and transition.

Subsequent briefings draw on cases and examples from Australia and overseas to examine:

strategies for driving economic regeneration, regional productivity and innovation
the collaborative governance imperative
the public leadership and other capabilities that local governments need to invest in to realise these opportunities in their own communities and places.
This series will be of interest to elected representatives responsible for strategy and stewardship, and to senior council officers who want to develop contextual awareness and insight into opportunities for governance design, implementation and capability-building.

Dr Anne Tierney is a past senior public servant in the Queensland Government, has served as Dean of the Griffith Business School and founding Director of their Policy Innovation Hub, and is Principal at Constellation Impact Advisory. Anne is partnering with LGiU Australia to write a series of briefings about the nexus between governance and economic recovery and transition. This is a critical area for local government to consider as it seeks to ‘build forward’ from the COVID-19 pandemic.

Briefing in full

Introduction

Beyond its health and economic impacts, COVID-19 has challenged and arguably has disrupted many of the ideas and assumptions that have dominated policymaking for the past 40 years. For some, the pandemic has been an ‘X-Ray’ that has exposed the accumulated costs and consequences of growing inequality and the damage wrought to social cohesion, particularly since the 2008 Global Financial Crisis.

The imperative to rebuild and recover from the pandemic – and to address its differential impacts on industry sectors, people, and communities – has shifted the economic orthodoxy and stimulated a suite of new policy approaches. All are premised on governments playing ‘a more active and smarter role’ in the economy. This includes: public investments in innovation, infrastructure, training and skills, better coordination with private and civic investment, and seeking to redistribute economic benefits and opportunity. In the United Kingdom, ‘levelling up’ is a key pillar of Boris Johnson’s government’s Build Back Better plan. In the United States, President Joe Biden’s American Rescue Plan has committed $US5trn (around 25 per cent of annual US GDP) towards reducing inequality. Biden considers ‘shared prosperity’ as essential to overcoming political polarisation and domestic threats to the United States’ democracy.

As this suggests, concepts of ‘inclusive growth’ have become mainstream, and coupled to the twin goals of ‘building forward’ from COVID-19 and to accelerating the transition towards a net zero emissions economy. Sub-national leaders and particularly local governments have a central role in realising these ambitions, notably in fostering regional productivity and innovation, and creating decent, secure jobs in traditional and emerging industries. But economic recovery and maximising the opportunities of the transition to a low-carbon future is not automatic; nor is it guaranteed. It demands different, more explicitly collaborative governance strategies – particularly at the place level. It also requires investments in dynamic capabilities in the public sector.

This series of briefings addresses this nexus between governance and economic recovery and transition. This introductory briefing explores the ideas and identifies the opportunity context that presents for local governments to catalyse and drive inclusive, sustainable economic growth, to build on and leverage their strengths, and to attract and retain investment in their communities and places.

The health and economic impacts of COVID-19

COVID-19 has been a complex, cascading global mega-crisis that has revealed the capacity, capability, and resilience (or not) of governments internationally. It has exposed the risks and vulnerabilities of systems that are embedded in (and depend on) complex and interconnected networks, governance arrangements, and supply chains. The pandemic has also revealed the accumulated consequences of health and socioeconomic inequalities in many countries. Its impacts have fallen disproportionately on the most vulnerable individuals and along racial, ethnic, occupational, and socioeconomic lines; women, young people, and those in insecure work have borne the brunt of both its economic effects and opportunity costs, both now and into the future.

In many communities, the crisis has exacerbated disadvantage, exposing the vulnerabilities that derive from economic and social exclusion (Shafik, M 2021). Inequality is a significant risk for individuals, families, and communities, but there is growing recognition that it also poses threats to public health, productivity, and social cohesion. The pandemic has highlighted the significant and growing divide between wealthy and poor regions – in terms of employment, income, educational outcomesm and wellbeing; and has exposed the human and economic costs of decades of underinvestment in public health, infrastructure and other public services, and of prioritising financial efficiency over other measures of value, including preparedness for contingencies (Carney, M 2021).

A shifting economic orthodoxy

Although these trends were in evidence long before COVID-19 began its rapid spread in 2020, the failure of many governments to deal effectively with the crisis focused attention on the need for policy frameworks and governance arrangements capable of addressing the immediate public health impacts, and to deal with the impacts of the recession induced by the imperative to implement lockdowns and to restrict trade and travel. Facing high and rising mortality rates, and with hospitals and health systems overwhelmed by people infected with the virus, the obvious question concerned why the experience of the UK and US was so poor compared with the performance of countries including Germany, New Zealand, Vietnam, and South Korea. It quickly became clear that at least part of the answer was greater public sector capacity.

Economic support and recovery packages to respond to the crisis saw governments abandon core tenets of the neoliberal economic orthodoxy that has dominated public policy for 40 years. Central banks and international organisations urged political leaders to launch massive spending programs to prevent economic collapse and to support their populations to comply with government mandated shutdowns. This shifting economic paradigm is evident in the design of packages pursued by governments on the left and right of politics, all of which to a greater or lesser extent have embraced:

  • Public capital investment, recognising the positive spillover effects of spending on infrastructure and innovations.
  • A ‘smart and active role’ for government in coordinating private sector activity and in skills and innovation
  • Investing in early childhood education and care.
  • Addressing inequality as an economic strategy (Eaton, G. 2021).[1]

This represents an important shift, bringing concepts of inclusive economic growth to the mainstream and emphasising governments’ potential to shape markets by using their power to coordinate and direct other economic actors. Economist Mariana Mazzucato argues governments should focus their investments and recovery efforts towards ambitious ‘missions’, and that they should use policy instruments – including strategy, investment and procurement – to leverage public good outcomes for the long term.

Sub-national governments are core to pandemic recovery and the transition to a low carbon economy

As noted above, COVID-19 has impacted differently on population cohorts, communities, and places, revealing the extent to which growth and opportunity has become concentrated around and dominated by big cities – including in Australia. These spatial differences are especially apparent in the UK and the US, and were exacerbated by post-GFC austerity programs.

The British government acknowledges that for several decades, London and the country’s south-east has enjoyed disproportionate access to jobs and opportunities, while large parts of England – notably in the north east, and other parts of the Union – Northern Ireland, Scotland, and Wales, have languished. The Johnson government’s COVID-19 recovery plan includes commitments to ‘unite and level up the country: tackling geographic disparities; supporting struggling towns to regenerate; ensuring every region and nation of the UK has at least one globally competitive city; and above all, strengthening the Union’. This is a response to pressures for greater devolution from nationalist movements, particularly in Scotland following the 2016 Brexit referendum, but also reflects leadership being exerted by

In Australia, the pandemic has renewed interest in the capacity and potential of state and local governments not only as providers of essential public services, but also as being more responsive to local issues and concerns. Following hard on the heels of the ‘black Summer’ bushfires, the crisis has challenged the centralising trend that has characterised Australian federalism in recent decades, positioning sub-national governments (particularly local authorities) as the level of government best able to understand and reflect the needs, aspirations, and potential of local people and businesses.

Local government leaders and officials thus have especially critical roles to play in achieving sustainable prosperity and inclusive growth in their communities and places. This requires them to marry contemporary economic thinking with deep knowledge and understanding of the capacities and resources that can be mobilised towards place-sensitive strategies that build on and leverage local strengths.

Governance as an enabler of sustainable prosperity and inclusive growth

Local governance and leadership have long been recognised as enablers of prosperity (see Figure 1 below). Local government has always been an active economic partner that supports the community and the market, but the advent of network governance – reforms that brought complex and interconnected webs of partners from the public, private and for-purpose sectors into policy and service provision – has created new imperatives. These interdependencies mean that no single actor (including government) is capable of addressing a given opportunity or challenge on its own. Moreover, since capacity and resources are embedded in and dispersed across networks which have stronger and looser ties at different times, the key issue becomes how to coordinate and leverage collective action towards shared goals (Kettl, D. 2015).

Opportunities for local government to catalyse inclusive and sustainable economic transitions

Figure 1: Pillars and Enablers of Prosperity | Source: SGS Economics & Planning 2021

The twin challenges of pandemic recovery and the opportunity it presents to support the transition towards a low-carbon economy demand coordinated responses that are carefully nuanced to community and place. Economic transition and pandemic-recovery strategies are being framed to reflect local capabilities and strengths (‘smart specialisation’) and to ensure more equitable distribution of the economic costs and benefits (‘just transition’). International experience has identified collaborative leadership and governance arrangements that support coordination between different tiers of government, industry, civic and community organisations, and affected communities, as critical success factors (Oei, P.Y., Brauers, H. and Herpich, P. 2020).

There is growing interest in the potential of dedicated, place-based transition authorities to lead consultation and engagement with stakeholders – to develop agreed priorities, and to coordinate, plan, monitor, and oversee progress towards (and to help facilitate) local cooperation. The Latrobe Valley Authority, established by the Victorian Government following French multinational Engie’s November 2016 decision to close the Hazelwood Power Station, (Wiseman, J., Workman, A., Fasternarth, S. and Jotzo, F. 2020) is an example of this type of mechanism. There are growing calls for similar arrangements to support individuals, businesses and communities most exposed to the transition away from emissions-intensive industries (The Next Economy (2021). Such calls – to more intentionally address the ‘just transition’ through coordinated policy and investor action – are likely to generate binding commitments at the CoP26 meeting in Glasgow in November 2021.

Comment

This briefing has described the discernible shift in economic thinking crystallised by the COVID-19 pandemic and the global economic shock that it precipitated. The imperative to recover from the pandemic and to couple recovery strategies to address the global and accelerating transition towards net zero emissions economies presents opportunities for sub-national governments, ones that are newly empowered by the recognition that active and smart governments have the potential to shape local markets. As the level of government closest to citizens and local businesses, convening and collaborating with networks of actors who share a commitment to inclusive and sustainable growth forms a present and imperative priority.

The next briefing in this series explores strategies for driving economic regeneration, regional productivity, and innovation. It draws on international experience, but also on cases and examples being pursued by local communities across Australia. It aims to identify transferable lessons to achieve sustainable, inclusive economic growth, tailored to local capabilities and strengths.

 

For more information on this briefing contact LGiU Australia by emailing mzierke@sgsep.com.au

 

References

Carney, Mark (2021) Value(s): Building a Better World for All. London: William Collins

Eaton, G. (2021) ‘Is the neoliberal era finally over?’ New Statesman, 16 June.

Kettl, D. (2015) The Transformation of Governance: Public Administration for the Twenty-First Century. Updated Edition. Baltimore: Johns Hopkins University Press.

The Next Economy (2021) Central Queensland Energy Futures Summit Report.

Oei, P.Y., Brauers, H. and Herpich, P. (2020) ‘Lessons from Germany’s hard coal mining phase-out: policies and transition from 1950 to 2018’. Climate Policy, Vol 20, No. 8, 963-979.

Sandbu, M. (2021) ‘What is Bidenomics?’ Financial Times, 20 May.

Shafik, M. (2021) What We Owe Each Other: A New Social Contract for a Better Society. Princeton: Princeton University Press.

Wiseman, J., Workman, A., Fasternarth, S. and Jotzo, F. (2020) ‘After the Hazelwood coal fired power station closure: Latrobe Valley regional transition policies and outcomes 2017-20’. CCEP Working Paper 2010. ANU: Crawford School of Public Policy and Centre for Climate and Energy Policy.

[1] See, for example, Eaton, G. (2021) ‘Is the neoliberal era finally over?’ New Statesman, 16 June. Also Sandbu, M. (2021) ‘What is Bidenomics?’ Financial Times, 20 May.