As shown in Figure 1 the recession of the early 1990s battered the economy of Melbourne more extensively
than the rest of the Australia. Melbourne's industrial heartland contracted sharply, with a range of flow on
effects. There was heavy migration out of Victoria. Today, Melbourne has emerged from the worst global
recession since the Second World War in a strong position. So what has changed? The economic reform
agenda of the past twenty years has helped transform Melbourne into a post-industrial knowledge intensive economy.
Macroeconomic policy settings and a microeconomic reform agenda can be seen to have greatly enhanced
the Melbourne economy. However, spatial policy reforms and key infrastructure projects also played a crucial
role in Melbourne's transformation into a leading knowledge intensive economy.
Government-inspired revitalisations at Southbank and Docklands provided the Central Business District with
"Greenfields" to accommodate growth in knowledge intensive service industries. Road projects such as the
Western Ring Road, CityLink and EastLink helped to improve connectivity within the city. These factors have
produced agglomeration economies which have attracted high levels of skilled labour to the city and enabled
high productivity firms to flourish. This has helped to produce a diverse and nimble knowledge intensive economy.
Labour productivity estimates for Melbourne and Regional Victoria are shown in Figure 3. Melbourne has
historically had a higher level of productivity than Regional Victoria (as measured by value of output per hour).
The past five years have seen labour productivity growth in Regional Victoria stagnate. Much of this is due to
the vastly different industry profiles in Melbourne and Regional Victoria. Also, regional centres cannot easily
compete with the opportunities provided by the agglomeration advantages of Melbourne (chiefly economies
of scale and scope).
The State Government's investments in the regional fast rail project did take an important step towards
greater integration between the labour market of Melbourne and those of Ballarat, Geelong and Bendigo.
Melbourne's renaissance has brought policy makers a new set of challenges. The current metropolitan
structure now appears to have reached the limits of its utility. Ensuring the future prosperity of Victoria
will require a new generation of reforms and infrastructure investments. This next generation of reforms
will have to ensure a well connected, higher density metropolis with a focus on extending the highly
productive environment centered on the CBD, to other parts of Melbourne.
This will require improved transport links (to overcome the congestion which will accompany increased
population and employment growth). It will also require more intensive development in existing areas around
the CBD, in Melbourne's middle ring, and in its six Central Activities Areas (Footscray, Broadmeadows,
Box Hill, Ringwood, Dandenong and Frankston) to take advantage of existing transport infrastructure. City
shaping projects of this kind should be viewed not just as land use and transport planning but as a key to
driving forward the economy of Victoria.
If Melbourne is not maintained in its current level of liveability and economic prosperity the city will diminish
and the population can be expected to migrate to other areas of Australia or the world. It will be younger
people who would be the first to migrate, which over time will reduce the number of births in the future.
This could result in a smaller working age population to support the overall population. Combined with
lethargic labour productivity growth (driven by a poorly organised city) this would have a range of negative
implications for the whole of Victoria.
Macroeconomic and microeconomic reforms alone can no longer be relied on to provide the productivity
improvements which will drive the Victorian economy forward. The latest frontier in boosting Australia's
productivity lies in the way we spatially organise and manage our cities.
For more information please refer to http://www.sgsep.com.au/sgs-submission-vcec-inquiry.
