Published in The Weekend Australian (Sydney),  23 July 2011

For politicians, and especially for town planners, letting people decide where and how they want to live has never been an acceptable idea.

Administrative elites have always been convinced they know better than ordinary folk how cities must look and in which areas urban and regional development should take place.

The fight between the lofty ambitions of planners and the cold hard reality of economics still rages. Politicians and planners still believe that they know better. Yet despite all their efforts they regularly fail to suspend the laws of geography and economics.

A few weeks ago, the Grattan Institute presented a study with yet more evidence that regional planning still fails to “make economic water flow uphill”.

This is how John Daley and Annette Lancy, the authors of the study Investing in Regions: Making a Difference, summarised their findings. Australians have become used to the idea of a two-speed, or even “patchwork” economy, as Julia Gillard put it. That is to say that some parts of the country are growing faster than others. Booming mining regions have a different growth profile from stagnant country towns; the employment opportunities in big capital cities are very different from those in remote communities.

These developments appear to happen naturally, but they present a challenge to bureaucrats and politicians who wish to increase economic development in those regions lagging behind Australia’s boom towns. Enormous resources are mobilised to close this gap.

As the report estimates, Australian governments spend about $2 billion a year to promote economic growth in the regions. The results of these initiatives are nevertheless disappointing.

Initiatives meant to create jobs in disadvantaged areas are usually very costly without having a positive long-term impact on employment. Sometimes even the opposite outcome may be achieved.

In general, the authors found that after big factory closures local job markets did not recover any faster if the regions received structural adjustment assistance.

Efforts to create regional knowledge clusters delivered equally unsatisfactory results. Establishing regional universities is often seen as a way to foster innovation, create jobs and improve higher education participation in the areas. On all these counts the evidence suggests Australia’s regional universities have failed. Indeed, as the report points out, “the gap between metropolitan and non-metropolitan higher education participation rates has actually widened over the last 20 years, despite the proliferation of regional universities”.

If this was meant to be a sign of success, one wonders what failure would look like.

Infrastructure provision is also promoted as a means to drive regional growth. But this overlooks the fact that on a per capita basis regional and remote areas already receive much higher infrastructure spending than metropolitan Australia. The higher spending, however, has not resulted in regional areas catching up. Instead, fast-growing city regions are missing out on the funding they need in order to cater for their growing populations.

Altogether, Grattan’s conclusions are that planning for regional growth has been an enormous waste of money. Even when accepting the goal of promoting regional growth, it is clear that diverting funding to regional areas has not been an adequate means to achieve it.

The Grattan report is a most welcome contribution to the debate about planning for a growing Australia. Its general conclusions about the effectiveness of regional policy, however, only confirm the results of similar research conducted abroad.

I was involved in such research when I directed a project for the British think tank Policy Exchange. We analysed the efficiency of programs aimed at reviving former industrial regions.

British governments engaged in such “urban regeneration” policies tend to be physical in their evaluations. A department might decide struggling city X needs a cultural centre to turn around its fortunes. Once the final brick has been laid, a government bureaucrat will declare success. But he would not know whether the cultural centre has had any discernible impact on X’s economy.

Our research tried to find out whether there was a discrepancy between government spending on urban regeneration projects and measurable social or economic effects. We took a sample group of cities that received funding from the government’s main regeneration programs and compared these cities to both the British average and another group of cities without regeneration funding.

Going through indicators such as income levels, unemployment rates, life expectancy and education results, we encountered the same trend over and over. Though all British cities had improved over a period of three decades, the ones without access to regeneration funding had improved more than the others.

Instead of our sample moving closer toward the British average, they were actually falling further behind in relative terms. The promised urban renaissance never arrived, despite urban regeneration funding of more than £stg100 billion during 30 years.

At the time, we concluded British story was a tale of two types of cities: one free to prosper, the other dependent on regeneration funding. It is, by and large, the same result now discovered by the Grattan Institute for regional policies in Australia. In both cases, deliberate urban or regional policies seem incapable of working against the forces of economic geography.

It turns out the law of supply and demand and the liberty of the individual remain powerful forces that need to be reckoned with.

Does this mean there is nothing government can do in terms of regional development? It depends on what is meant by regional development. If the question is whether government can direct people to certain places, the answer has to be “not very much”. But if the question is about creating a favourable environment in which regional development can take place and in which cities can experiment with different ways to turn themselves into attractive places to live, invest and work, then surely there are things government could do.

In a survey just published by the Centre for Independent Studies (Australia’s Angry Mayors), my colleague Adam Creighton and I revealed the degree of frustration felt by Australian local government leaders. In our opinion poll of mayors and local government chief executives, we found that 94 per cent believed funding arrangements were either completely or partially inappropriate for dealing with population growth. The same percentage cited infrastructure as their main concern for dealing with a growing population. And 56 per cent said they had had to increase council rates to fund extra infrastructure for new residents.

If you read our publication and the Grattan report together, you get a startling picture. On the one hand, there is certainly no lack of government programs and funding for regional and urban development, however unsuccessful these initiatives may be. On the other hand, none of these programs seems to help local government. In fact, the reverse may be true. Where population and economic growth happens, councils are feeling financially punished because they command insufficient resources to cope with it.

It is time to realise that top-down planning in regional policy does not work and that the alternative to more centrally administered programs should be a strengthening of local democracy. Only by enabling councils politically and financially to develop their own growth strategies will we be able to effectively help those disadvantaged areas of our patchwork economy.