Executive Summary
Conventional economic measures, such as Gross Domestic Product (GDP) and Gross State Product (GSP) have long served as proxy measures of economic progress at the national and state levels. Although never intended as such, GDP and GSP have become standard measures of economic prosperity on the assumption that a jurisdiction’s economic performance is positively related to the magnitude of its economic output. Notwithstanding this, a growing number of observers have recognised that GDP and GSP fail to adequately account for a large number of the economic, social, and environmental benefits and costs of economic activity. Hence, there is an emerging consensus that GDP and GSP have limited validity as measures of economic welfare.
Despite this growing realisation, policy-makers continue to steer national and state economies with the aid of a misleading economic compass. It is vital that a more appropriate indicator of economic welfare be deployed to better appreciate a nation’s or state’s well-being and to improve public policy outcomes. An indicator capable of serving this function exists in the form of a Genuine Progress Indicator (GPI).
Comprised of twenty-two benefit and cost items, the GPI integrates the wide-ranging impacts of economic activity into a single monetary-based index. Because the GPI incorporates a broad spectrum of benefits and costs, it would, if adopted, assist decision-makers to identify a jurisdiction’s strengths and weaknesses, thus rendering it easier to pinpoint where a nation or state is progressing or floundering. This would enable decision-makers to tailor policies to maximise their positive impact on immediate and future levels of economic welfare.
First devised in the 1990s, the GPI is now increasingly accepted by academics, politicians, and bureaucrats alike. This is reflected by the large number of GPI studies conducted at the national level and the recent growth in GPI studies at the state/provincial level. Over the past decade, GPI studies have been conducted on the US states of Vermont, Utah, Ohio, Minnesota, and Maryland; the Canadian province of Alberta; the Chinese province of Liaoning, and the Chinese cities of Suzhou, Yangzhou, Ningbo, and Guangzhou. In 2012, the Vermont State Legislature passed a bill establishing the GPI as a metric to assist the State Government’s decision-making process – more specifically, to serve as a tool for identifying public policy priorities and measuring the progress of existing policies and programs.
This report presents the results of a GPI study on South Australia spanning a thirty-year period from 1986 to 2016. Over this period, the economic welfare of the average South Australian increased by 30.3% from $33,190 to $43,249 per year, albeit little progress was made between 1986 and 2004 and again between 2000 and 2011. Over the same thirty-year period, South Australia’s per capita GSP increased by 61.6% from $36,612 to $59,183 per year. This suggests that the growth in South Australia’s per capita GSP significantly overstated its rate of genuine progress.
On a brighter note, the results of this study indicate that after a lengthy period of minimal progress, the average South Australian is $3,000 per year better off than five years ago and around $2,000 per year better off than the average person living elsewhere in Australia. Indeed, the per capita GPI of South Australia has exceeded that of the Rest-of-Australia (Australia minus South Australia) since 1998.
The recent rise in South Australia’s per capita GPI can be attributed to an improvement in the state’s distribution of income, a steep rise in private-sector and public-sector consumption, an increase in the services generated by the infrastructural assets provided by governments, and the containment of environmental costs.
As for South Australia’s superior performance vis-à-vis the Rest-of-Australia, it is the upshot of South Australia’s more even distribution of income, its reduced cost of living (especially its reduced housing costs), and its significantly lower environmental costs. The latter is the result of a number of factors. These include South Australia’s virtual elimination of native vegetation clearance, its more efficient use of irrigation water (particularly water extracted from the Murray-Darling Basin), its lower energy consumption and greenhouse gas emissions per dollar of Gross State Product (GSP), and its reduced reliance on mining revenue as a means of financing its consumption (source of state income).
Another factor which seems to be benefiting South Australia is its relatively robust manufacturing sector (manufacturing constitutes around 11-12% of GSP compared to just 7% and 8% respectively for Western Australia and Queensland). This places South Australia in a better position than most states to add value to natural resources, which reduces its need to deplete natural resource stocks in order to support value-adding activities elsewhere in Australia and globally. Moreover, South Australia’s stronger manufacturing sector broadens the state’s skills base, provides a foundation upon which to develop new, high-tech manufacturing industries, and limits the rise in environmental costs.
On the down-side, South Australia has a relatively high rate of unemployment and underemployment. As a consequence, South Australia invariably has higher per capita social costs than the Rest-of-Australia. Although more should be done to reduce the labour underutilisation rate in South Australia, care should be taken to ensure employment-boosting measures do not sacrifice the state’s existing welfare-enhancing advantages.
South Australia would greatly benefit from attracting and developing high-grade manufacturing ventures to exploit its existing assets and history as a vibrant manufacturing state. While the closure of General Motors Holden (GMH) and rising electricity prices could pose a problem in the immediate future, South Australia’s efforts to move towards renewable energy sources are already paying dividends in terms of lower environmental costs and attracting new investment in projects well suited to the expected demands and challenges of the twenty-first century. It is unlikely that large-scale, resource-depleting projects would increase South Australia’s economic welfare in any significantly way.
Overall, this GPI study reveals that South Australia is a national leader in many areas not immediately evident through conventional economic indicators, such as the GSP (note: South Australia’s per capita GSP is below the national average). Should future policies be informed by the GPI, an opportunity exists for South Australia to increase its economic well-being and extend its welfare gap over the Rest-of-Australia, particularly if other states continue to base their policies on antiquated measures of progress.
