ECONOMIC DEVELOPMENT QUARTERLY
help meet more of the local workforce needs. This
increased self-sufficiency would help contain a much
larger share of any investment directed at Geraldton.
Leakage would be minimised, and multipliers would
be higher.
Entire nations have even greater potential to contain
leakage by diversifying into more industries along
their supply chains, thereby reducing reliance on
imported inputs. Investment in education and training
can also reduce reliance on foreign skilled labour.
Of course, this kind of self-sustainability is not
always possible or advisable. Capital City CBDs
for example, are major financial and business
hubs – and should remain so. Trying to stimulate
their economies by increasing the local resident
population, thereby reducing the need to import
labour from the rest of the city, will likely detract from
its commercial advantages. Yes, it may retain more
of its local resident expenditure, but this will reduce
floorspace available for commercial use.
And even nationally, it is often not advisable for an
economy to try to specialise in everything. Firstly, in
a developed country such as Australia, where the
private sector hasn’t already developed such activity,
this would require the government to ‘pick winners’.
This has been successful in the past (sometimes),
but it’s a risky option.
Furthermore, often it is just better to import things
that other countries are better at doing (like labour-
intensive manufacturing from Bangladesh), rather
than dedicating resources to an industry in which
we will probably never reclaim our competitive
advantage (and potentially taking resources away
from our real advantages).
"If Greater Geraldton needs an
economic boost but ‘leakage’ is
a concern, fiscal support from
the State Government is justified.
This way, Geraldton benefits
from added assistance, Perth will
benefit, given many of Geraldton’s
inputs would be sourced from
Perth, and, in a positive feedback
loop, Perth would potentially buy
more goods and services from
Geraldton."
Consequently, if self-sufficiency is not possible
or advisable, cooperation is needed. If Greater
Geraldton needs an economic boost but ‘leakage’
is a concern, fiscal support from the State
Government is justified. This way, Geraldton
benefits from added assistance, Perth will benefit,
given many of Geraldton’s inputs would be
sourced from Perth, and, in a positive feedback
loop, Perth would potentially buy more goods and
services from Geraldton. So, when a small area
is susceptible to leakage, the broader area that
benefits from this leakage should also assist.
Nationally, this requires global cooperation.
During the post-GFC slump in the developed
world, efforts by individual countries to stimulate
their economies fiscally (if they existed) would
have leaked somewhat, having less impact
locally. But through international cooperation,
nations could have coordinated their fiscal policy
programs, with all nations benefitting from the
leakage of other nations, via the modern world’s
globalised supply chains.
The solution, as is often the case, will require
a balance. Places, big and small, should not
become so overly specialised that they are
vulnerable to external shocks, and virtually
unaffected by local fiscal stimulus. But at the
same time, the benefits of globalisation should not
be unwound by attempting to become completely
self-sufficient in areas of competitive/comparative
disadvantage.
A global economy requires global cooperation.
ABOUT THE AUTHOR
Tom has spent the last five years as an
economist with several national economic
consulting firms, before joining Geografia in
July 2017. He contributes to, and project
manages the research, analysis and
presentation of many projects to assist with
policy formulation.
Tom’s expertise is in macroeconomic analysis and regional
economic development planning. He focuses on mining and
resources, property markets, tourism and accommodation and
agriculture. He is proficient in economic modelling and data
analysis, as well as consultation with government, industry and
community.
Tom also undertakes his own economic and political research
to further his understanding areas including financial crises (the
Great Depression, the Global Financial Crisis, etc.), monetary
and fiscal policy, income inequality, globalisation, exchange
rate regimes, political economics, international financial
markets/ banking systems, international demographic trends,
and international economic and political anomalies and history.
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