The New Knowledge Economy

Overseas examples have pinpointed the importance of a knowledge economy to regional prosperity. An obvious example is Silicon Valley in the US, but the Silicon Fen (or Cambridge Cluster) in Cambridge, UK, is another example of rapid knowledge economy development based on research, industrial development and both large and small scale investment. The important characteristic of these economies is their ability not only to generate but to commercialise new knowledge.

The most concerted efforts to decentralise metropolitan jobs by downgrading the fashionability and status of central business districts have been in the USA. These were not deliberate policies, they were the indirect results of fiscal arrangements which led to poor maintenance of public assets in the downtown areas. Silicon Valley is listed as the pre-eminent example of a suburban, car-based knowledge economy but the same applies to the office employment established around the beltways which circumscribe various American cities. However, even in the US the major CBDs showed resilience. New York City, Chicago, Boston and Philadelphia began to refurbish their transit systems, finding them necessary supports to the knowledge economy, and other cities including Los Angeles and Dallas began the costly (and not always successful) task of retrofitting mass transit. Even if the congregation of knowledge-economy jobs in central cities is but a matter of fashion, it is a fashion which is difficult to break.

Creativity is also pivotal to a knowledge economy. In today’s economy, successful regions develop an advantage based on their ability to quickly mobilise talented and creative people, resources and capabilities that can turn innovations into new business ideas and commercial products. Studies have shown that these people are attracted to regions that tolerate and accept diversity – same sex households, migrants and artists of all types – and that this kind of area is ideal for nurturing the creativity and innovation that characterise the knowledge economy.

Business incubators throughout the region have proved to be a successful way of developing and growing local industry. Offering accommodation and support for start-up businesses, these incubator services can be extended to offer young people the opportunity to start businesses in areas like ICT, design and new media. Support, such as new financial services and micro-loans, are vitally important in the early phases of new business development. There is an important correlation between the region’s incubators and appropriately targeted finance.

In the near future, the local manufacturing industry will need to deal with the impact of climate change, with its problems and costs. This means that the application of research and innovation to improve efficiency is even more important – ignoring this issue now will only create competitive disadvantage in the future.

The lack of an equitable telecommunications service has been recognised as a barrier to the development of a knowledge economy in many areas. The outer and rapidly developing parts of a region are particularly affected. It is important that businesses and households have equitable, affordable and high standards of connection to broadband services – both businesses and households must be able to compete in an increasingly globalised economy.

Young people are attracted to the income-earning, educational, cultural and entertainment opportunities of the metropolitan centres and can more easily adjust to high housing costs than people with family responsibilities. The same is true of some empty-nest seniors. However, people will continue to desire greater housing space as they form families, hence the problems of appropriate investment in commuting infrastructure. 

State of Australia’s knowledge economy  

Judging by patent applications, Australia’s most intensive knowledge-based regions are its metropolitan centres, though several of its independent cities are shaping up. Most regions are connected to the knowledge economy via a metropolitan city, either as suburbs or as hinterlands. An important weakness of the northern Australian regions, and hence of the country as a whole, is that they have no readily-accessible metropolitan centre through which they can be linked to the world knowledge economy. 

The Internet, as yet, is doing little to disperse the knowledge economy to Australia’s regions. If a region outside of these centres is determined to develop towards an Internet based knowledge economy, the effectiveness of local strategies is crucial. In this case lifestyle attributes as well as high speed connections are required to attract knowledge economy workers. In some regional areas, a lack of capacity of local government to understand Internet-related opportunities and threats combined with a low level of knowledge economy skills (as there have been few opportunities for residents to develop these skills) within their region are barriers to diversifying the knowledge economy to a wider geography outside of the traditional knowledge economy regions. These changes are cultural and social as well as economic and new ways of working, new ideas can face considerable hostility in some places. This is why a regional strategy to develop the knowledge economy in regions which wish to do so is vital, as is support and consideration for a region’s Internet entrepreneurs.

 Developing Australia’s knowledge economy

Recent statistical work has documented a general tendency for average earnings at the centre of metropolitan areas to increase as the size of the metropolitan area increases. The basic reason for high earnings in city centres is summarised as the economies of agglomeration – the greater the labour market that a central place draws on, the greater the productivity of its workers. In other words, city centres are the hotspots of the knowledge economy.

Australia’s difficulties in adopting the knowledge economy would be eased if knowledge economy jobs could be decentralised. This has proved very difficult, though there has been some decentralisation to inner metropolitan suburbs (particularly when they share the walkability of the city centre) and some to regions with attractive lifestyle options. Further decentralisation is likely to be incremental. It will require infrastructure support, especially investment in telecommunications and transport.

Infrastructure deficiencies make it difficult for low productivity/high unemployment regions to increase productivity. Relatively low housing costs are an advantage for regions seeking to attach themselves to the knowledge economy, as are lifestyle choices; these assist in attracting knowledge workers. However, such workers must be provided with the means to be productive, by placing themselves at the interface between the local economic base (particularly export industries) and the global economy. This requires investment in telecommunications and transport. It also requires low-key local investment so that every main street becomes an outpost of the knowledge economy.

The affordability of metropolitan housing could be addressed directly by investment in mass transit to make additional fringe areas available for commuter housing and by investment in local transit to extend pedestrian range and so support the geographic expansion of knowledge-based regions. It will also be important to support the diffusion of knowledge into hinterland regions, and back from the hinterland regions so that the combination of hinterland and metropolitan know-how generates innovation: telecommunications and transport are again required. Even if all of Australia’s knowledge regions are combined, they are but small compared to the megametropolitan regions of Asia, Europe and North America. Further economies of agglomeration could be achieved if the metropolitan areas were integrated to become a single globally-positioned knowledge economy. This will require a retreat from parochial mindsets, more interaction and more specialisation. Competition between states and regions should be re-focused on competition with the world at large. Yet again this would be facilitated by investment in improved telecommunications and transport.

Among those who concede the reality of economies of agglomeration, it was proposed that transport congestion on the routes into the CBD could to be relieved by the decentralisation of knowledge economy work into a limited number of major urban sub-centres strategically located within each metropolitan area, each of which would replicate the agglomeration advantages of the city centre. This ‘City of Cities’ approach relies on diminishing returns to agglomeration; the idea that there is a threshold above which there is no point in adding to any city centre.

If knowledge-economy jobs cannot be decentralised to beltway or suburban centres, why not disperse them widely and especially into lifestyle locations, beyond the urban fringe? This argument appeals to the proposition that telecommunications would substitute for personal contact, so freeing knowledge-economy work from locational constraints. Without challenging the importance of telecommunications as a foundation for the knowledge economy, practical experience has been that they do not substitute for the importance of meeting personally. This seems to be essential to the development of trust between economic participants and can also have serendipitous consequences when people with complementary ideas come into contact.

The least ambitious, and most practical, way to disperse knowledge-economy jobs within metropolitan areas is the expansion of city centres to include the inner suburbs. This reduces the distance from the fringe to the edge of the knowledge-economy region by a few kilometres and saves on expensive high-rise construction in the city centres but requires investment to connect inner suburbs to the centre and to each other by rapid, congestion-free transport. It is also important to maintain the walkability of the inner suburbs, all of which antedate the age of motoring and are hence at least potentially walkable. The typical European metropolis achieves this with a metro system backed up by on-street public transport. Sydney, Melbourne and Brisbane are all moving, tentatively, in this direction.

The bottom line is that until the National Broadband Network is completed the growth in knowledge economy firms and government online services will continue to be constrained, holding back the competitive position of firms, and, in government services, delaying cost savings that could have been achieved by online service delivery. High speed broadband is an essential part of this economic integration.

Nature of Unemployment in Australia

NIEIR’s Unemployment Rate

The NIEIR Unemployment rate is calculated by adjusting the headline unemployment rate for excess take-up of disability pension. Increases in the headline unemployment rate tend to be followed by transfer of many long-term unemployed to the disability pension. This transfer does not affect the social security take-up rate since the unemployed people who are transferred are generally already in receipt of Newstart allowances. However in regions where NIEIR unemployment is significantly higher than the headline rate we generally find a disproportionately higher rate of Social Security take-up. Though the NIEIR unemployment rate adjusts for the shift of unemployed people onto disability pensions, the Social Security take-up rate for persons of workforce age also reflects other aspects of community crisis, such as sole parents.

Nature of Unemployment in Australia

The most rapid rises in unemployment have occurred in QLD Far North Torres, SEQ Sunshine Coast, NSW North Coast, QLD Wide Bay Burnet and TAS Hobart South. Of the major cities SEQ Brisbane City has had the fastest rise of unemployment. The rise in the NIEIR unemployment rate in SEQ Brisbane City is likely the result of a general economic contraction in SEQ, a slowdown in growth and its consequences on construction workers and the like.

Once again it has fallen to NIEIR to document the disparities between regions. Whatever lip service may be made to equality of opportunity across the nation, it is manifestly not attained regionally. The mining boom has raised the pace of development in regions with large deposits of iron ore, coal and gas and has consolidated the position of the regions with high education, high social status and inherited wealth. However, it has disadvantaged regions dependent on industries depressed due to the over-valued exchange rate and has bypassed the retirement regions, which despite their attractive seascapes have maintained their established status as zones of limited economic opportunity

Employment in education grew more rapidly than the national average from 1992

to 2013. The primary driver of growth was the population of student age – hence relatively low rates of growth in rural regions and high rates in outer suburbs. The highest rate of growth was achieved in SEQ Sunshine Coast, closely followed by SEQ Gold Coast. In both these cases an element of institutional decision affected these growth rates, with new tertiary institutions taking advantage of growth in the student population. In one region a group of universities took advantage of locations at public transport nodes closely connected to the knowledge economy.

Larger regional centres will benefit from consolidation as regional population and employment concentrates in these centres. International investments in agriculture may drive agricultural initiatives. While agriculture will remain a foundation of many regional economies, it is likely that the trend towards consolidation of farms will continue. Regional economic development policies that encourage the development of new or realigned industry structures to strengthen regional capacity and retain critical mass will be important in creating new employment opportunities for young people.

How does this affect younger Australians?

Today it is much harder for new entrants to enter the job market and to gain full-time employment.  The full impact of this reality has had a major effect on the lives and prospects of young people. Job shedding and a move towards part-time or casual employment has been more severe for young people aged between 15-24 years trying to find or maintain employment than for any other cohort. Young people are of course Australia’s employment future and are critical in maintaining the participation rate, particularly when the population is ageing and the average age for employees in sectors such as manufacturing, agricultural and construction is increasing. Among other things this is a recipe for losing skills and know-how.

The ups and downs of employment opportunities for Australia’s young people have become a serious structural issue with implications which will resonate long into the future. Since the GFC the employment prospects for young people have continued to decline.  The current situation and the decline of employment opportunities for this cohort are stranding too many young people with little opportunity to learn work and job-ready skills. The financial and social costs to government and community will be high if the problem that young people are having in finding employment is not addressed.

Declining opportunities in manufacturing, structural changes to agricultural production, the decline in availability of lower skilled government employment and the significant decline in the number of apprenticeships across a range of industry sectors are all contributing to the decline of employment opportunities for young people in Australia. The trend to casual employment is having its impact on the prospects of young people, creating a general culture of insecurity as well as making it difficult for individuals engaged in casual employment to improve their higher-end skill sets.

The changes to rural communities where agricultural employment has declined as farms consolidate include the hollowing out of these communities. Tertiary education deferment rates for rural youth in a number of regions are higher than for their city counterparts because of the cost of accessing tertiary education including accommodation costs, an expenditure that can prove particularly difficult for rural families in times of drought or diminishing prices for farm produce

In rural and regional locations trade skills are more likely to provide a direct pathway to local employment opportunities than professional pathways, which tend to be more convoluted and require movement away from the town in which people grew up. Both pathways to employment offer national opportunities with trade opportunities existing (though now declining) in resource-based regions, in mines or energy developments and associated infrastructure developments. Professional opportunities are more city-based with professional services trending towards consolidation in larger centres.

Previous NIEIR studies have described the demand by employers for higher skills from their employees, due in part to the growing technology and communication needs of industry. In the Internet and social media age it is likely that young people have acquired skills that with tweaking could be turned to the advantage of business. So in some ways it is perverse that the ‘online generation’ has such difficulties in finding employment. Employment has changed and the idea that a particular qualification undertaken at a particular point of time is sufficient for a lifetime of work is out of date. The requirement is for workers to have the capacity to reinvent their skill sets through a process of lifelong learning, continually adapting skills and capabilities to stay in employment, perhaps in completely different industry sectors and employment positions.

The Internet in rural and remote regions is an important tool in providing pathways to lifelong learning strategies, particularly with the growth in uptake of MOOCs (Massive Online Open Courses). If current trends continue too many young people will be denied the opportunity to enter their first career, let alone adapt to the process of lifelong learning and employment.

Education and location are important factors in determining the prospects of young people in employment as are social status, networks and household wealth. It is also likely that those advantaged by location and wealth will benefit most from the Internet and the new employment opportunities this part of the economy provides. From an industry perspective innovation is also a key way of creating employment opportunities for young people as employment opportunities for young people in traditional industries and government employment decline.

Some of the issues

As a policy objective it will be important to create opportunities for young people in employment in emerging industry sectors. This means sophisticated careers guidance in school and planning that needs to begin at an early age so the idea of employment and work are integrated into the educational process. Then it is about providing appropriate courses that, as far as possible, match future industry demand and skills. This is not to say there should be a ‘monoculture’ approach to education, far from it in a globalising world. The need is for well targeted education that also provides broader knowledge capabilities, creative, leadership and communication skills. How well teachers in school education are equipped to teach around the idea of future skills and work culture may be an issue that needs further thought including ongoing learning opportunities for teachers.

Australia’s link to the new knowledge economy needs to start with education. Education around the world, and that includes Australia, is in a transition. The vitally important tertiary sector, both in terms of knowledge exports and high quality education and training for Australians, is under pressure from global competition, educational technologies and government cuts to spending.

These trends are a concern, because to compete in the global knowledge economy, Australia needs more research, more development of intellectual property and more knowledge economy businesses. These things are facilitated by education.

The decline of manufacturing, particularly in the automotive industry, is also a concern because this has the potential to damage the nation’s research, innovation and knowledge diffusion capacity, with these things heading offshore along with the manufacturing industry. In a few years time every car you see on Australian roads will have been finally manufactured somewhere else with perhaps a few components from Australia.

This manufacturing workforce as well as the construction workers employed in the construction phase of the mining boom will need new employment opportunities. Where are these to come from? Government policies including those relating to retraining opportunities for manufacturing workers who lose their jobs in coming months and infrastructure development policies and investment will be highly significant. There is a close supply chain link between construction and manufacturing.

The failure of the knowledge economy to take hold in regions outside of central and inner city regions is another issue facing Australia, can broadband and training opportunities change this dogged reality?

NIEIR modeling indicates that delays by industry to adapt their business models to global and knowledge economy bench marks, and this includes education (and many other sectors), will have serious consequences for the economy. We should all take the opportunities from the knowledge economy very seriously.

The 2014-15 State of the Regions Report describes many of these issues and is available through the ALGA site.