Detroit lessons for South Australia

As Groucho Marx said 'It isn't so much that hard times are coming; the change observed is mostly soft times going."

Marx was wrong. In South Australia the hard times are here. We won't be able to sit back in three years time and quaff Barossa Valley wines and pat ourselves on the back and say 'thank God that's over'.

This is globalization at work as manufacturing markets in Asia undercut local producers on price. The fact is that over the last 60 years, South Australia has failed to diversify its economy and hunt for new export markets - although Coopers and Haighs chocolates did.

How seriously are politicians taking the state's problems? We recently had three state politicians David Ridgway, Russell Wortley and Mark Parnell, spend the night near a windfarm in the state's north. They were seeing how noisy wind farms were. It was a ridiculous media stunt, which South Australia is becoming known for.

Detroit, America's fourth largest city, filed for bankruptcy with debts of $20 billion last month. It was the home of America's automotive industry and in 1950 had a population of 1.8 million people. It now has 700,000 people as well as thousands of abandoned buildings and properties for rent.

Detroit's situation - like Adelaide's - is dire because it is not limited to a single event or one failed financial deal. Detroit's plight was caused by numerous factors including a shrinking tax base, falling population, overwhelming health care and pension costs and borrowing to pay off debt. The interest on the debt compounded and then took off like a rocket.

Like many industrial cities, Detroit has been hit by the loss of manufacturing jobs-in this case in auto and supporting industries-that has left whole communities devastated. The Detroit metropolitan area alone has lost 150,000 jobs since 2000, affecting both the inner city and the surrounding suburban areas.

ABS data released last month show that SA job vacancies have dropped by a whopping 42 per cent in the last 12 months, the worst fall of all the states. According to ANZ job ads data, the number of weekly SA newspaper job ads has fallen by 26 per cent over the same period.

The official unemployment rate is 7.1 per cent although the real unemployment rate combined with the under employment is closer to 12 per cent, and much higher in regional areas and the northern suburbs. Youth unemployment in areas north of Adelaide is over 40 percent.

South Australiamakes up 6.2 per cent of the national economy, down from 7 per cent in 2003-04 and the trend is south. Deloitte forecasts a decline in the state's share of national output in the next five years down to 5.8 per cent. The state carries $14 billion of debt. The deficit is a record $1.2 billion and the interest on that debt is forecast to reach $800 million.

South Australia's population growth on revised figures is about 15,600 people per year. Keep in mind that as the state's 440,000 Boomers hit there 70s and move to retirement, job vacancies will rise but it is unknown as yet, what sort of jobs will be available in 2020.

Census data collated by the University of Adelaide demographer Professor Graeme Hugo and as reported in The Advertiser, shows 59,222 people left the state between 2006 and 2011 - 9000 more than who came to SA over the same period. South Australia is losing brains, skills and brawn.

Recycled Prime Minister Kevin Rudd recently announced a change in fringe benefit taxes that will add $1400 to the cost of a company car. This comes at a time when Holden is trying to convince its Detroit bosses (good luck) that it can turn a dollar out of making and selling cars in Australia. It's poor timing. Barring a miracle, Holden will be gone by the end of 2016.

I am starting to sound like Cassandra outside Agamemnon's castle, but in Port Pirie north of Adelaide, there is deep concern about the future of the smelting operations run by Nystar. If the Belgian giant can't get its $350 million redevelopment financed and approved, it will pull out. The company one employs 700 local people and another 2500 jobs feed off the smelter operations.If Nystar goes, Port Pirie goes with it.

It's a hypothetical but if Holden closes and Nystar pulls out, the state would lose millions in revenue but even more seriously, it would directly throw 3200 people out of work and the knock on effect would push another 10,000 people to the wall.

The state could handle it but the social dislocation would be on a par on what has happened in Detroit. It means long dole lines and all of the attendant social problems caused by dashed expectations. There would be a massive interstate exodus of workers as banks foreclosed on mortgages.

There are rumours that Adelaide Brighton will move its cement and white clinker business offshore because of high costs and the still relatively high dollar. Adelaide Brighton employs 1600 people and 586 of those are based at Port Adelaide. It recently bought a 30 per cent stake in a Malaysian cement business for $US29.7 million ($A28.59 million). Will Adelaide Brighton go? It's too early to say.

South Australianeeds to pull its finger out now and cut the camping expeditions.