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It’s time to justify government spending in regional Australia

Regional prominence: but is government funding hitting the right target? AAP

Some of the most famous and prestigious universities in the United States were founded after different regions offered inducements such as free land to attract a campus to their area.

These university towns are often cited as examples of how a regional university can boost regional economic growth, attracting students and staff and acting as a hub for innovation, knowledge and creative endeavour.

Australia also has many university cities. Nearly three-quarters of our 39 universities have a regional campus or are based in a regional city.

No evidence

There is a popular belief that regional economies grow faster when there is a local university.

Yet analysis in a new Grattan Institute report, Investing in regions: Making a difference, could not find any evidence for this belief.

In particular, tertiary participation and graduate retention is the same in regional cities, whether or not they have a local university.

This is one of the most controversial findings of the report and has been disputed by the Federal Minister for Regional Australia, Simon Crean.

The Minister has pointed to graduate destination surveys. A recent study finds that over 65% of students who graduated from regional universities in 2002 were working in regional areas in 2008.

As regional universities primarily draw students from regional areas, this finding is not surprising.

However, graduate destination data alone do not provide a benchmark against which to judge these figures. Is 65% a good retention rate, or should we expect higher rates?

Grattan used Census data to track school leavers in 2001 who would have graduated in around 2004 or 2005.

We compared the tertiary participation and graduate retention rates between regional areas that have a local university and those that do not.

If regional institutions boost tertiary participation and keep people in the region, we would have expected rates to be higher in towns that have a university. But based on Census data, once you control for size of towns, that is not the case.

Dominant drivers

So what is going on? Literature on regional student participation gives us some clues.

It consistently finds that socioeconomic background and family expectations are the dominant drivers of decisions to go to university, and proximity matters relatively little.

Similarly, whether graduates stay in regional areas depends on where the right jobs are. This can explain why more than 80% of a regional university’s agriculture graduates gained work in regional areas, but fewer than 60% of creative arts or IT graduates did the same.

At present more than $2 billion a year of Federal and state money is earmarked for regional spending. Yet there is little evidence that it is directed to programs that make a real difference to regional growth.

Local job creation schemes, regional universities, small-scale road and major infrastructure programs are not only expensive, they do little or nothing to materially accelerate slow-growing regions.

Government funding needs to recognise the fast-changing reality of regional Australia. Inland centres - except for a few where mining drives rapid growth - are growing slowly or even shrinking.

Investing money to speed their slow growth or reverse their decline is by and large a futile attempt to make economic water flow uphill.

‘Worse than waste’

Building infrastructure does not produce economic growth unless there is already a skilled workforce and an expanding private sector to exploit it. Job creation schemes are expensive, require continuing support and tend to divert jobs from elsewhere rather than create new ones.

Worse than the waste, these regional economic development programs can prevent money from going where it is both needed and able to contribute to economic growth - in Australia’s fast-growing or `bolting’ regions.

The regions within an hour or two’s drive of major capital cities are growing faster than the major capitals themselves. So, too, are coastal areas, even those far from capital cities.

Between 2005 and last year, for example, the populations of Mandurah and Bunbury, south of Perth, grew by more than 4 percent per year; the population of Hervey Bay in Queensland by nearly 5%.

In Victoria, Ballarat grew by 2% per year, adding 9000 new residents.

These and other fast-growing regional centres share common features. They are not just commuter dormitories for their nearby capital. They are growing as economic and service centres for their regions. They have better infrastructure and more skilled workers.

Within an hour or two’s drive of major capitals, they are just close to have access to a large base of suppliers and customers.

Investment sense

Investing in these centres makes economic sense, and it is more equitable. Their citizens are getting significantly less than their fair share of services and infrastructure.

Grattan Institute’s report does not suggest that smaller and slower-growing parts of the country should be left without vital services such as schools, hospitals and transport.

These areas remain great places to live, and often score more highly than larger cities on measures of wellbeing and social connection.

Yet it is time for governments to be more candid about what their money can and cannot do in regional Australia.

They need to justify their programs, including additional funding for regional universities, on social and equity grounds, rather than claiming that they are generating additional economic growth.

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