Dutch Disease is killing the economic prosperity of Regional Australia.

Alan Kohler of the Australian Broadcasting Corporations ‘Inside Business’ summed up the situation like this:

“You've probably heard of a jobless recovery - America's got one now. But what about a full employment recession?

Dutch Disease is an economic theory that identifies the relationship between an increase in exploitation of natural resources and a decline in other sectors. The model was first mentioned in The Economist in 1977 and went some way to describe the situation in the Netherlands after a major natural gas discovery in 1959 led to a significant decline in manufacturing over the next couple of decades.

Christine Ebrahim-Zadeh in her March 2003 article ‘Back to Basics’ for the IMF stated: "In the 1960s, the Netherlands experienced a vast increase in its wealth after discovering large natural gas deposits in the North Sea. Unexpectedly, this ostensibly positive development had serious repercussions on important segments of the country's economy, as the Dutch guilder became stronger, making Dutch non-oil exports less competitive. This syndrome has come to be known as "Dutch disease." Although the disease is generally associated with a natural resource discovery, it can occur from any development that results in a large inflow of foreign currency, including a sharp surge in natural resource prices, foreign assistance, and foreign direct investment. Economists have used the Dutch disease model to examine such episodes, including the impact of the flow of American treasures into sixteenth-century Spain and gold discoveries in Australia in the 1850s."

As I have mentioned in previous articles and discussed briefly on the HR Happy Hour Australia has nation-wide unemployment sitting at 4.9% and that number will likely drop over the next 12-months given the pick-up in the mining, energy and infrastructure sectors.

At the same time as some Australians are experiencing the benefits of booming commodity prices and the parallel wages that go with it, the various Australian capitals are experiencing significant recessionary trends. Retailing, tourism and manufacturing are susceptible to inflationary pressures brought on by an increasing Australian dollar ($AUD), weak domestic demand (especially the Tourism and Retail sectors), higher energy costs and a local consumer who would rather save than spend currently after a couple of tough years.

In the regions, those recessionary trends are more acute and the impact is devastating. Three cases which have come across my desk in recent months highlight some of the strong effects on regional Australia:

1. Western Downs Region: I got the opportunity to travel up to the Western Downs Region in December last year, just a month prior to two devastating floods that would inundate key towns including Dalby and Cinchilla and kill 10-people in flood related events. During the couple of days I spent as part of a Regional Workforce Planning seminar team I was struck by the absolute polarity between mining groups and their highly paid DIDO (Drive-In Drive-Out) workforce and that of the retail and agricultural groups struggling to find workers on award wages. One example was especially noteworthy, that of a local piggery who had a 300% per annum turnover rate with all of their employees brought in from China on 400 series visa arrangements which took up to a year to process by the Department of Immigration.

2. Fraser & Sunshine Coast Regions: In May 2010 I also had the opportunity to spend a day at the Fraser Coast Tourism Forum where the community, largely committed to the tourism dollar but with less than a third of the Sunshine Coast’s population had to deal with a problematic Global Financial Crises (GFC) and lowering inbound numbers caused at that time by an increasing Australian dollar.

Now more than a year on I had the opportunity to discuss the same economic numbers with several serious government and commercial players on the Sunshine Coast. The discussion centred on the on-going bad numbers from the GFC, the lower than expected inbound numbers, the awful internal tourism market due to a savings (rather than a spending) economy, a very high $AUD dollar and a dreadful retail economy which impacted on 40,000 Sunshine Coast workers.

3. Cooloola Region: The regions with the biggest problems are the diversified economies with no exposure to the best parts of the economy (i.e. mining, energy or significant infrastructure builds). This includes the region I washed up in after the floods and am now happy to call home. The Cooloola Region has a diversified economy but its main employment sectors include agriculture, manufacturing (for example the regional hub Gympie has a large Nestle factory which employs 300+ people), retail and some tourism. All of these sectors are negatively impacted by the Dutch disease.

The full employment recession or Dutch disease will hit regional areas of Australia with more force than they will hit the capital cities of the country which have large tenured employment sectors (i.e. government, universities) and greater churn rates in the retail and services sector. The current focus by the relevant jurisdictions and the media who constantly talk up the patch-work economy without covering the regions which are not benefiting from the second mining boom emphasises a lack of understanding in regional Australia.

I don’t have any suggestions or answers to this issue today but wanted to note that the continued lack of understanding and engagement will only make the affliction worse in regional Australia. If we aren’t careful we might find that even in a booming economy we will have parts of the country that will decline and might not even survive.

Shane Granger is an Operational workforce planner, analyst, social scientist, pseudo-intellectual, occasional blogger, hiker, fine-wine lover & cricket nut. He can be lauded or abused on Twitter @gmggranger