Australian spatial economics

Even in this digital, online world, it’s no secret that all economic activity has an important element of physical space.

Economists and geographers know this. In fact, a whole field of study is devoted to it, and it’s called economic geography.

Unfortunately, the spatial dimension to our work and our consumer lives is something that government policy makers, economic planners and regulators often seem to forget or never even consider. Too many government policies and programs assume that we are all sitting in the same space – presumably (when here in Australia) within a five to ten kilometre radius of the central business district of one of our capital cities: Sydney, Melbourne, Brisbane, Perth, Adelaide – or perhaps Canberra (but certainly not Darwin or Hobart).

Here in Australia, about two-thirds of us live in the capital cities, making Australia (despite our “outback” and rural myths) one of the most urbanised countries on earth. Singapore, city-state that it is (with a 100 percent urbanisation), we are not. But more than 89 percent of us live in urban areas, not far behind Japan and South Korea (both at 91 percent).

So the high rate of Australian urbanisation means we can assume geography is not significant, right? Wrong. With our massive continent and our sprawling cities, we have a number of regions that experience profound and intense geographic disadvantage. Think western Sydney, western Melbourne and most regional, rural and remote areas.

The fact is that employment and economic activity is NOT evenly spread along with the population, despite our high urbanisation rate. Economic activity is particularly concentrated in and around the major central business districts, a point made comprehensively and convincingly in a report from the Grattan Institute entitled “Mapping Australia’s economy: Cities as engines of prosperity”, by Jane-Frances Kelly and Paul Donegan.

The Institute summarises the situation:

More than three-quarters of all economic activity in Australia happens on less than one per cent of the nation’s land mass. In today’s services-driven economy, Australia’s cities are the engines of material prosperity.

For a long time agriculture was the backbone of our economy, as we rode on the sheep’s back. After World War Two prosperity shifted to suburbia, with manufacturing employing one in four Australians. This report shows that Australia’s economy is increasingly driven by knowledge-intensive services located in Australia’s large cities. Within these cities the most intense and productive economic activity is concentrated around central business districts and a small number of other business hubs. The way these areas draw large numbers of businesses and workers together makes them all more productive.

Key facts from the report include:
– “Eighty percent of the value of all goods and services produced in Australia is generated on just 0.2 percent of hte nation’s land mass.”
– The CBDs of Sydney and Melbourne – just 7.1 square kilometres – generated $118 billion during the 2011/12 financial year, almost 10 percent of Australia’s economic activity.

And the major reason for the intense economic activity? The concentrations are of “highly knowledge-intensive and specialised services such as funds management, insurance, design, engineering and international education”, with highly skilled workers. And it is the physical “proximity to suppliers, customers and partners” that promotes efficiency, generating “opportunities to come up with new ideas and ways of working” (report, p. 1).

So there you go. We communicate via digital means and at great distances quicker and easier than ever. But yet, we still prefer – in fact, many of us need – to be physically close in order to work efficiently. Economic planners take note.

Mapping Australia's economy

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