Cities are the new engine rooms

When you’re sitting in the daily traffic jam do you wonder  where all those people are heading? The answer is simple: just like you they’re going to light up the biggest and fastest growing part of the Australia economy – the city.

That’s right forget the mining boom, or the resurging agricultural sectors, it’s the cities where all the action is with 80 per cent of all goods and services in dollar terms being generated from Australia’s capital cities or those areas close to them.

A report by Jane-Frances Kelly and Paul Donegan for the Grattan Institute, finds that it’s the big cities that are now driving our economy. In the case of Sydney and Melbourne, their central business districts alone account for almost 10 per cent of Australia’s gross domestic product. And what’s the main product in that GDP, it’s services.

Sydney Morning Herald economics editor Ross Gittens made some salient points when commenting on the report that puts Australia’s economic transition in context. “To find the economy as many people still imagine it to be, you have to go back 50, even 100 years. About 100 years ago, almost half Australia’s population of 4 million lived on rural properties or in small towns of fewer than 3000 people. Many of these would have been market towns serving the agricultural economy.

“Agriculture and mining accounted for a third of the workforce. And only about one in three Australians lived in a city of at least 100,000 people. These days, agriculture employs only 3 per cent of workers and contributes only 2 per cent of GDP. Our two biggest CBDs contribute at least four times that much.”

Gittens also points out that in recent times the impact on manufacturing and the longer-term decline in agriculture’s share of employment and GDP has occurred even though in the case of rural production output is higher than ever. These industries didn’t contract so much as other parts of the economy, like mining grew faster, shrinking their share of the total.

And interestingly while mining has been a big driver of the economy a lot of the jobs associated with it have been generated in the cities in so-called knowledge-based support industries.

“Knowledge-intensive jobs are vital to the modern economy. They drive innovation and productivity, and are a critical source of employment growth. In the last 15 years there has been much higher growth in high-skilled, compared to low-skilled, employment,” the report says.

But there is also a warning:” A great reshaping of Australia’s economic geography is underway. The nation has moved from prosperity coming from regional jobs in primary industry a century ago, to suburban jobs in manufacturing after World War 11, to city centre jobs in knowledge-intensive businesses today.

“While city centres are vital to Australia’s prosperity, the concentration of highly productive activity in them presents big challenges for policymakers, because too many workers live too far from these centres to fulfil our cities’ economic potential.

“For the sake of the economy and the fair go, we have to find ways either to enable more workers to live closer to these centres, or to reach them more quickly by road and public transport.”

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