The economic maturity of a centre is defined by the quality, not quantity of activity.  Immature centres are those typified by low productivity population-driven activity whilst mature centres are characterised by high productivity activity, ‘creating’ wealth through the export of goods or services.

By assessing the concentration of quality employment located within a centre, we can identify the relative maturity of a centre, and begin to develop economic development strategies appropriate to this level.

The matrix on the left shows four degrees of activity centre maturity, based upon the relative concentrations of Knowledge Intensive Consumer Services (KICS) and Knowledge Intensive Export Oriented (KIEO) employment.

Commercially-oriented activity centres often begin life as an Immature Population Centre, servicing the basic consumer needs of a local population catchment.  These centres are the economic ‘kids and teenagers’ of a city.  With low concentrations of KICS and KIEO employment, they demand increasing amounts of attention (catchment) and food (consumption) in order to keep growing.  Eventually growth must stop as competitive forces impact upon floorspace productivity, or statutory controls (the parents) limit individual land-uses (in particular retail).

For an Immature Population Centre to mature into adulthood, consumption–based growth must be combined with a shift in focus to intensity, diversity, employment and connectivity. In time, an increase in the concentration of higher order population-driven services (KICS including education and healthcare) will occur, with the centre gradually becoming a Diverse Population Centre – a young adult!

Carving a place out for oneself in the world, the young man or woman may be tempted to rest on one’s laurels; however the life has only just begun……

The end-game is the development of Mature Diverse Strategic Centres.  These are the ‘wise elders’ of the city.  Through the creation and export of goods and services, they provide economic leadership for the urban environment, attracting wealth and providing resilient support to the city in times of change and trouble.  Some centres achieve this level of maturity through the benefit of natural competitive advantages.  Others need to develop it through targeted initiatives that support knowledge creation, innovation systems, technology and commercial development, and efficient supply chains.

In Australian cities, commercially oriented activity centres located outside of CBDs are most often Immature Population or Diverse Population Centres. More mature and diverse centres lie within the inner suburbs, having grown up over decades (and even centuries), benefiting from the effective density of a city’s centralised employment characteristics.

The consequences of Australian cities continuing to encourage centralised quality employment, and decentralised settlement patterns, are becoming well understood. Looking beyond the often arbitrary hierarchies assigned by planning agencies, there is an urgent need for activity centres within middle and outer rings to mature much faster than before, becoming productive adults before their time.  This will require a considerable targeted effort on behalf of both the private and public sector.

Pracsys has done a lot of financial analysis to determine whether various sustainable technologies, such as recycled water, are viable compared with current methods, such as traditional scheme water, in the developments of the future.

There is no doubt we need to embrace alternative technology; the problem is the capital costs associated with these technologies are often very high.  Add the fact that current technology is so heavily subsidised and the comparative cost really starts to add up – and the stakes get higher.

In making investment decision does the developer risk short and medium returns in the knowledge that cashflows will be positive in the future? Alternatively do we sit on our hands, watch and wait and hope that such technologies become relatively more affordable once others pave the way and economies of scale are achieved?

No-one wants to be the first to jump, the one to pay a premium for taking that leap of faith. Particularly given that we’re talking about the basics that everyone should have access to – water, power, transport. If the end user doesnt percieve the full value of these technologies then the developer will need to subsidise the price to make it attractive to market.

If Government, for example, were to embrace sustainable alternatives, who would pay for it? Would it put the basics beyond the reach of lower income residents?

There are some advantages in being the first to take the leap, to set benchmarks for others to follow. Water is a scare resource in Perth; it’s a fact that we need a more sustainable method of water supply.

The trick is to strike the right balance between the  risk and the benefits, both economic and environmental, of such action. And this means Governments making some hard decisions, working to sway public opinion on issues such as recycled water, and ultimately being convinced that they should take a chance, even if the figures don’t stack up in the here and now.

His biographer, Robert Skidelsky discusses foxholes and the follies of new classical economics on this audiovideo from The Economist.

Robert Skidelsky

Put simply, it does not provide incentives for states to be innovative in attracting new companies or projects.

While business was booming in the resources sector, the royalties were heading east in the direction of Canberra.

In theory, WA gets part of the royalty money back from the Commonwealth, however, the more WA earns from royalties, the less it receives in GST revenue through the Commonwealth Grants Commission’s horizontal fiscal equalisation policy (HFE). This means that States with below average revenue-raising capacity or above average spending needs receive a larger share of GST – as HFE redistributes resources from States with the capacity to provide above average services to the other States.

The GST is not distributed on a per capita basis so while WA might contribute $10 a head to the Federal coffers it may only get back $1 per head in GST. Meanwhile, Tasmania may get $10 a head because it does not have the means to provide the level of services residents of a “wealthier” state might expect.

States and territories have their capacity assessed based on advantages or disadvantages beyond their control, considered to be ‘policy-neutral’. However, in many cases it’s unclear what benefits arise as a result of policy or are natural occurrences. This means that a State enforcing policy to build upon its advantages is not rewarded, yet States that do not implement policies to try to develop economically in the face of disadvantage are rewarded.

An egalitarian society clearly has to cater for everyone but this “dumbing down” approach to taxation inhibits innovation. If, for example, the State Government wanted to attract global export companies by offering reduced payroll tax, then it would receive fewer GST allocations from the Commonwealth.

Vertical fiscal imbalance (gap between spending responsibilities and ability to raise revenue) is evident, with the cost of State health and education rising above the cost of inflation, yet net payments to the States remaining below the pre-GST average of 6% of GDP. The NSW Treasurer recently predicted that based on current growth rates, by 2033 the whole of the State’s budget would be swallowed up with health, mainly due to the ageing population.

Yet if the NSW government were to make a policy decision to dramatically reform its health system to improve efficiency and reduce costs – resulting for example in the ability for NSW to provide average levels of health services to residents for half of the previous cost – horizontal fiscal equalisation would kick in and reallocate NSW efficiency gains to below average performing States. This reduces incentives to innovate and prevents States from being able to channel efficiency gains from one sector to improve productivity in another sector.

The Barnett Government has been trying to negotiate with the Commonwealth for an advance on the Gorgon gas deal royalties to ensure it can provide the level of social and industrial infrastructure in the Pilbara that will be required to support the workforce for the $50 billion project. The infrastructure problems WA experienced during the last boom will only get worse without greater access to the tax base, such as a cut of income tax which would also act as an incentive to attract high quality employment.

The Secretary of the Treasury, Dr Ken Henry, is due to hand down his report into the future of the Australian taxation system this year. It remains to be seen whether it will address any of these concerns in enough detail to ensure greater innovation into the next decade and beyond.

It is not simply a case of “build it and they will come”. If it is not planned correctly from the beginning, a development can quickly become a costly white elephant.

Pracsys is undertaking the economic analysis of a site next to the Mandurah train station which Landcorp would like to buy and develop over the next 10 years.

A transit orientated development (TOD) is directly impacted by transport, but there are broader issues than the traffic passing through. The fact that people are coming and going from an area does not necessarily make it a viable concern.

Planners need to determine what the site can bear in terms of residential development and, therefore, commercial and retail.

 The relationship between retail and residential development is relatively straightforward: the former is generally driven by the latter. Less clear is the relationship between residential and commercial space.

It is pointless to park a lot of commercial floor space without understanding what it would mean to the immediate area and surrounding region. How much commercial floor space is currently available, what is it used for and how functional is it?

The viability of a new precinct needs to be examined within this context. What would the development add to the area? Who will be attracted to it, what can it support and what will drive demand? How would it be connected to other precincts in the region?

There must be a specific strategy in place to ensure the viability of any development before a sod is turned. The number one lesson is: Don’t develop in isolation.

Your grandmother, if she worked outside the home at all, might have been in the typing pool or an old-fashioned secretary who made the tea and took shorthand for her male boss; your grandfather a loans clerk at a bank or a worker at a manufacturing plant.

They might have had six children, but certainly not fewer than four so they never wasted a thing; clothes were handed down; meals made out of the very basics.

Service, they will tell you, was more personal in their day. They knew their bank manager by name, their doctor regularly did house calls; if they needed anything fixed – from the radio to a car engine or office equipment – there would be a guy down the road who’d have it done in a jiffy; rare holidays would be planned with maps, brochures and trusted travel agents.

You, on the other hand, are likely to be working in mining, in IT, or be self-employed. The secretary is more likely to be a personal assistant who also has a degree and multi-skills in computers, office management and accounting.

You probably only have two children and they already have a plethora of “stuff” that you don’t understand and they certainly don’t need. If you want a loan, you apply online and hear back within a few days without ever having a conversation with anyone, let alone going into a bank; if something’s broken you’re far more likely to throw it away than have it fixed; and if you want to go on holidays you probably book the whole thing online.

So many jobs have either gone completely, are on the way out, or will undergo a complete transformation to adapt to a changing society.

In the past we bought more of life’s essentials; now we spend a lot more on things that are not necessary. With rising living standards comes increased consumption and more pressure on finite resources.

Sustainability, then, will be a big player in the workforce of your children’s future. As will the likes of genetic medicine and innovations in technology for the care of an ageing population.

Some of their job titles may sound like science fiction to you (and certainly to your grandparents) but as society’s priorities change so will the nature of their employment. Future jobs will include the likes of:

Telemedicine technician. Forget the traditional GP. These guys will act as support assistants who can diagnose conditions using state-of-the-art GPS medical systems; they won’t even need you to be in the same room.

Chief innovation officer. Someone paid to move the ideas along, to organise innovation efforts and find ways to commercialise them, to maximise entrepreneurial outcomes.

Corporate alumni director. If networks are knowledge capital, then places (ie cities) with a lot of knowledgeable alumni are very valuable resources indeed, resources that need fostering and careful managing.

Eco-relations manager. With a growing focus on green energy and sustainability there will be more and more green collar jobs, such as selling carbon credits or managing carbon allocation.

Retirement consultants. With an ageing population, jobs will change to provide greater services to cater for their needs. A wealthier, “younger” aged population will demand better services.

Whatever their jobs, your children will be adapting to changes in society, just as you, your parents and grandparents did before them. As always, developments will be about increasing efficiency, getting more output from the same input, no matter the science and technology behind those job changes.

While growth has not happened overnight it has certainly accelerated over time. With each passing age, from the agrarian through to the information age, the city has grown in stature.

Cities quickly became the centres of activity and, thus, increasingly represent the concentration of humanity. Inventions such as the Internet and rapid transit have only added to their growth.

And as the emphasis shifts to intellectual property, cities become even more important. In order for a city to be successful you need the right networks to form, the right groups of individuals coming together in a concentration of infrastructure and an environment that provides that right social and intellectual stimulation for innovation to happen.

Australian cities aren’t doing so well on this front. Too many decisions on changes to our cities are based on limited information. How do we cater for the growing population, for example? We determine where the cheapest land is and build there. Never mind that this land happens to be further and further away from the city centre, making it more difficult for us to operate efficiently, reducing the quality of available employment and transport. In other words, building cities that are inherently less sustainable into the future.

European cities, on the other hand, have a degree of maturity that recognises sustainability as a survival strategy. They know from experience how important the allocation of resources is to the future.

Necessity is the mother of invention. Without enormous resources to haul out of the ground or sheep’s backs to ride on, countries such as Finland have shown just how to turn an apparent negative into a longterm positive – creating cities that are based around the growth of knowledge industries, cities that take the allocation of resources seriously and look at all relevant indicators, not single factors such as the availability of land.

Too many Australian cities are mired in the short-term fix. In Perth in particular, where the memory of WA Inc still burns brightly, there is almost a terror of anything that hints at the public and private sector working in concert.
Government operates in three year cycles; decisions are too often made with one eye on the next election for fear of changes in public opinion. We need a more balanced long term view of all the structures for a viable city.

The private sector which can react very quickly and institutions which can find solutions very quickly need to be given equal weight and access to decision making. They need to share equal billing if cities are to move forward.

You only have to look at the squandered riches of the state’s boom to realise the risk of not acting. Where are the major pieces of infrastructure, the innovative projects to come out of all those mining dollars? We need a complete rethink of governance.

Rather, it is an economic essential, a critical part of a modern, vibrant city.

What many of the world’s leading cities have in common is their status as an outstanding centre for arts and culture. The Royal Ballet in London, the Met in New York, La Scala in Milan… these cultural drawcards reasons to go to such cities in and of themselves.

And people who come for arts and culture come to spend. This economic reality shows even in Australian cities which still fall short of deserving the mantle “creative capitals”.

Half of all overseas visitors attend at least one cultural attraction while they are in town. If they come for a day, they spend $30 to $35 per head on arts and culture; if they stay overnight, their spend jumps to $120.

Residents, too, show their appreciation, with 65 percent of Australians attending at least one form of arts and culture in a year. This support is particularly evident in people aged over 30.

If, however, a city such as Perth is to grow and prosper it needs to do much more in this vital area. Nice beaches and good weather are all very well, but they do little for the bottom line.

To secure the kind of creative and thinking people who can take a city to another level of competitiveness, Perth needs to offer a lifestyle that this crucial knowledge sector finds attractive.

The presence of a vibrant arts and culture scene is a major drawcard. A city that takes its culture seriously has a major advantage over a competitor trying to secure the services of creative people.

Funding support for the arts varies wildly, with different models operating around the world. In the United States, support comes largely from private or philanthropic quarters. In Europe, where there are 20 times the number of opera houses in major cities than in their American counterparts, support is primarily from government.

In Australia, like Canada, there is a mixture of support from the private and public arenas. In uncertain economic times, sponsorship or direct funding of the arts is often cut back, seen as a optional extra – a spend with little, or no, return.

This is a very short-sighted approach. Arts and culture doesn’t just provide the social return we all acknowledge makes for a better society; it provides real return in areas vital to long-term growth. It is a significant employer – 35 percent of the population either works or volunteers in the area. It encourages people, visitors and residents, to tip money into the economy by attending arts and culture events. And, crucially, it attracts the kind of people we need to develop a city into a major player.

For Australian cities to be in with a fighting chance, it is essential for government at every level to hold firm, to recognise the real and intrinsic value of arts and culture, and lift its support. Culture doesn’t just make us feel good; it makes good economic sense.