Productivity and geography

John Daley, CEO, Grattan Institute Productivity Commission Conference, Canberra

12 December 2016

2

Productivity and geography Allowing jobs to concentrated in the centre of big cities may increase productivity •  Services are growing much faster than other sectors •  This services growth is concentrated towards the centre of big cities •  Employer choices and outcomes suggest that there are productivity

benefits (and perhaps rents?) from agglomeration

Government can fail to support central city growth; it can’t do much to encourage regional growth •  Infrastructure investment has not matched economic growth •  Reforming planning and housing policy may well yield economic benefits

These economic patterns have political costs •  In Australia and around the world, politics is dividing between

cosmopolitanism and nationalism – corresponding to cities and regions •  The divisions are both economic and cultural

3

0

20

40

60

80

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Goods

Services

Notes: Excludes “rents and dwelling costs” and “other goods and services”. Based on seasonally adjusted current prices data Source: http://grattan.edu.au/wp-content/uploads/2015/10/Capital-City-Lord-Mayors-for-web-pptx.pdf

People are consuming more services Share of total nominal household expenditure

4 Source: ABS 6291

Services growth accelerated in the last 5 years Cumulative employment growth since 2010 000 people, trend

-200

-100

0

100

200

300

400

500

2010 2012 2014 2016 2010 2012 2014 2016

Mining

Manufacturing

W’sale, retail, logistics

Construction

Ag, utilities

Education & health

Business & other services

Admin, public admin

Accomm, food, recreation

5

0 10 20 30 40 50 60 70 80 90

100

$bn

Australia’s economy is now dominated by its big cities Australian economic activity, 2015-16 Per cent of State total

NSW Vic Qld WA SA Tas/ ACT/NT

Sydney Melbourne Brisbane Perth

Ade

laid

e

0 200 400 600 800 1000 1200

SE Qld

SGS Economics & Planning , GDP by major capital city, 2015-16

Hob

art/C

anbe

rra/

Dar

win

1400 1600

6

-10 0

10 20 30 40 50 60 70

The geography of job growth changed about 2008 Employment growth, Sydney and Melbourne

Inner (~0-2km)

‘000

Grattan analysis, BITRE

Employment growth, United States

Did central city growth happen because of or despite government policy?

-500

0

500

1000

1500

2000

2500

3000

‘000

2002-07 2007-11

City Observatory, Surging city centre job growth

Middle (~2-15km)

Outer (>15km)

City centre

Metro ex centre

2001 -06

2006 -11

Sydney Melbourne

7

Small business is increasingly dispersed Change in number of businesses, Payroll < $500,000

Change in businesses Increase Decrease

2007-2011

2011-2016

Bruce Rasmussen, VU, using Workcover data, http://www.vises.org.au/documents/2016_%20Rasmussen_MEF_Changing_Business_Location.pdf

200 400 600

200 400 600

8

Big business is increasingly centralised Change in number of businesses, Payroll $1m to $10m

Change in businesses

200 400 600

Increase Decrease

2007-2011

2011-2016

Bruce Rasmussen, VU, using Workcover data, http://www.vises.org.au/documents/2016_%20Rasmussen_MEF_Changing_Business_Location.pdf

200 400 600

9

Economic output per hour is particularly concentrated in Melbourne Economic activity per working hour, 2011-12, Melbourne

Grattan analysis of ABS data in Mapping Australia’s Economy

Airport: $63

CBD: $86

Southbank:$76

Docklands: $103

Dandenong: $44kilometres0 10

>$90$80-90$70-80$60-70$50-60$40-50<$40Insufficient data

10

Sydney is a little less concentrated, with an unusual “northern arc” Economic activity per working hour, 2011-12

Grattan analysis of ABS data in Mapping Australia’s Economy

Parramatta:$68

Macquarie Park: $81

North Sydney:$91

CBD: $100

Airport: $65

kilometres0 10

>$90$80-90$70-80$60-70$50-60$40-50<$40Insufficient data

11

Why are the centres of big cities growing so fast? In a services economy, physical proximity matters •  Medial papers are more likely to be influential if the authors sit close

together •  People in businesses in bigger cities communicate more with people in other

companies – in person, over the phone, and over the internet •  Before we do real business with another company, our first instinct is to

meet face to face

Communications technology increases the importance of being close to others •  The rise of communications technology (telegraph, telephone, fax, internet)

has consistently increased the value of being physically close to each other •  The first companies to limit remote working and insist on physical proximity

between their staff were … technology companies

12

Productivity and geography Allowing jobs to concentrated in the centre of big cities may increase productivity •  Services are growing much faster than other sectors •  This services growth is concentrated towards the centre of big cities •  Employer choices and outcomes suggest that there are productivity

benefits (and perhaps rents?) from agglomeration

Government can fail to support central city growth; it can’t do much to encourage regional growth •  Infrastructure investment has not matched economic growth •  Reforming planning and housing policy may well yield economic benefits

These economic patterns have political costs •  In Australia and around the world, politics is dividing between

cosmopolitanism and nationalism – corresponding to cities and regions •  The divisions are both economic and cultural

13

0%

10%

20%

Sydney Melbourne Brisbane Adelaide Perth

0%

10%

20%

30%

Rest of NSW

Rest of VIC

Rest of QLD

Rest of SA

Rest of WA

% of national economy (2014-15)

% of population growth (2004-14)

% of road & rail investment (2006-15)

State

Commonwealth

Size Size and transport infrastructure spending % of Australian total

Government transport spending has not reflected growth in economy or population

Source: Grattan Institute, Roads to Riches

14

Those living in Sydney’s west can’t reach many jobs by car Percentage of Sydney jobs that can be reached in 45 minutes by car

SGS Economics & Planning

>5040-5030-4020-3010-20<10

Parramatta

MacquariePark

CBD

Airport

kilometres0 10

15

Women in poorly-connected areas face especially difficult compromises Differences in male and female workforce participation by suburb, Sydney 2011

Grattan analysis of ABS data in Productive Cities

16

0

1,000

2,000

3,000

4,000

5,000

6,000

Population density has increased, but not much in the middle ring

Sydney Melbourne Brisbane Perth Adelaide

Population density, 1981 and 2011

5 10 15 20 25 30 Distance to GPO, km

1981 2011

Source: Coffee et al, “Visualising 30 Years of Population Density Change”

17

Productivity and geography Allowing jobs to concentrated in the centre of big cities may increase productivity •  Services are growing much faster than other sectors •  This services growth is concentrated towards the centre of big cities •  Employer choices and outcomes suggest that there are productivity

benefits (and perhaps rents?) from agglomeration

Government can fail to support central city growth; it can’t do much to encourage regional growth •  Infrastructure investment has not matched economic growth •  Reforming planning and housing policy may well yield economic benefits

These economic patterns have political costs •  In Australia and around the world, politics is dividing between

cosmopolitanism and nationalism – corresponding to cities and regions •  The divisions are both economic and cultural

18

Perth

Adelaide

Melbourne

Sydney

Brisbane

Source: AEC, Grattan Institute analysis

Political geography in Australia is reflecting economic and social trends 1st preference Senate votes 2016 to larger parties (LNP, Labor, Greens) More than:

85% 80% 75% 70% 65% 60% <60%

“Ordinary Australians do have a common enemy, but it is not Aborigines, Asians, or people of any particular colour, race or creed. Our common oppressors are a class of raceless, placeless cosmopolitan elites who are exercising almost absolute power over us.”

Pauline Hanson, The Truth (1997) Source: AEC, Grattan Institute analysis

19

The geographic divide is growing wider politically

0%

10%

20%

30%

40%

1 10 100 1000

2004

2007

2010 2013

2016

Source: AEC, Grattan Institute analysis

1st preference Senate votes to minor parties (not LNP, Labor, Greens) LOIS

Distance to State GPO (km)

20 Source: AEC, Grattan Institute analysis

Distance to State GPO (km) (log scale)

0% 10% 20% 30% 40% 50%

1 10 100 1000

0% 10% 20% 30% 40%

1 10 100 1000

10% 20% 30% 40% 50%

1 10 100 1000

Proportion minor parties

20,000 30,000 40,000 50,000 60,000

1 10 100 1000

Average income

Qld SA

NT

ACT NSW

Vic

Tas WA

Qld SA

NT

ACT NSW Vic

Tas

WA

Qld

SA

NT ACT

NSW Vic

Tas WA

Qld

SA

NT ACT

NSW

Vic Tas WA

Minor party votes and geography also correlate with education, income, & migrants Proportion higher education

Proportion foreign born

21

Productivity and geography Allowing jobs to concentrated in the centre of big cities may increase productivity •  Services are growing much faster than other sectors •  This services growth is concentrated towards the centre of big cities •  Employer choices and outcomes suggest that there are productivity

benefits (and perhaps rents?) from agglomeration

Government can fail to support central city growth; it can’t do much to encourage regional growth •  Infrastructure investment has not matched economic growth •  Reforming planning and housing policy may well yield economic benefits

These economic patterns have political costs •  In Australia and around the world, politics is dividing between

cosmopolitanism and nationalism – corresponding to cities and regions •  The divisions are both economic and cultural