Why Sydney needs an integrated economic strategy

The Greater Sydney Commission’s (GSC) recently developed Greater Sydney Region Plan – A Metropolis of Three Cities – is spatially focused but it does not include an integrated economic strategy. This is despite GSC outlining several economic challenges and opportunities for the region, recognising the need to generate almost a million new jobs by 2036.

For Sydney to remain the leading metropolitan economy in Australia, the three cities – the Western Parkland City, the Central River City and the Eastern Harbour City – will need to be better connected through transport and develop areas of specialisation rather than compete for investment. They will need a clear direction for future sustainable growth. Furthermore, to remain a liveable and fair city the three cities will need to ensure well-paying jobs are delivered closer to homes.

This vision will not be realised without an economic strategy with fairness and economic competitiveness at its core. There are several themes the economic strategy could focus on.

The first is the need to ensure Sydney becomes more innovative and globally competitive – Sydney is slipping behind competitor cities on measures of innovation.

The second is the need to ensure access to opportunity is more evenly spread across Sydney. This is essential for Sydney to remain a liveable and fair city.

The third is the need for infrastructure to be delivered in a way that maximises economic contribution. Narrow approaches to infrastructure appraisal means we are missing opportunities to deliver economic growth through infrastructure.

Delivering the full economic potential of the GSC region plan vision will require an integrated economic strategy recognising the distinctive but complementary economic roles for the three cities. This represents a key opportunity for the GSC.

A skills and innovation plan is needed to ensure Sydney remains globally competitive

Sydney needs to create sustainable employment growth that is resilient in the face of economic uncertainty. Key to this is encouraging the creation of innovative new industries that will be harder to off-shore and which will grow new export bases for the state.

Research shows that for every high-tech innovation job created in a city, many additional jobs are created both in skilled occupations and lower skilled occupations. Yet Sydney is falling behind on measures of innovation, with the NSW Trade and Investment Action Plan 2017-18 noting the region is losing ground to competitor cities throughout Asia.

The GSC is well placed to lead a targeted jobs strategy across the three cities and collaboration areas. It could play a role in coordinating the current array of start-up incubators in Sydney. Programs initiated by the GSC could proactively engage with businesses to innovate, start-up, and grow and identify where the gaps are in the ecosystem.

For example, it is generally recognised that there is a shortage of start-up business founders with deep sector experience and too few non-government investors and financial backers of new businesses. The economic strategy could address this through providing pathways for mid-career professionals to become entrepreneurs or mentors to new start-ups in the variety of sectors being disrupted by technology.

It could also look at ways of working with the banking sector to increase the risk appetite for investment in technology SMEs or removing barriers to accessing finance for business ventures.

Encouraging innovation should be set amongst a broader objective to grow the skills and industry bases of the future and identity the land use requirements to support this. This should be a critical planning requirement for the three cities. Skills scenario planning is needed rather than the BAU approach of simply relying on job market forecasts based on extrapolation of previous trends. The GSC could take a lead on this by working with partners such as industry bodies and education providers to develop a skills and education plan that meets the long-term needs of the city, to address skills gaps and provide an ability to adapt as economic circumstances change.

Sydney needs to spatially rebalance economic growth across the region to support social sustainability

An economic strategy represents a major opportunity to bring quality jobs closer to people.

A recent report by Western Sydney University highlighted that not enough high-value professional services sectors jobs are being created to match the growing number of tertiary qualified Western Sydney residents. We know that there are existing industry agglomerations in western Sydney including Liverpool, Greater Penrith and Campbelltown-Macarthur, and their health and education precincts. However, economic development planning in these centres is happening in ad hoc way with each precinct competing for investment.

One role of the economic strategy could be to prioritise and direct attention to precincts best able to support industry clustering and agglomeration. Creating connected vibrant economic centres with a high quality public realm should be an aspiration. The GSC could direct attention to the precincts where there is a current impediment to development (for example lack of transport access, older land uses that need retrofitting, barriers to collaboration) but which when overcome could deliver the “green shoots” of high productivity jobs.

Lessons from economic strategies globally consistently show that this approach – catalysing growth by incentivising actions that benefit whole communities – is far more likely to deliver social gains and multipliers of jobs than through investment in subsidies to individual businesses. One example location is the Westmead Medical Precinct, which the City of Parramatta Council has advocated to be considered a specialised precinct by the NSW government.

The GSC Collaboration Area Agreements outlined in the district plans identify a possible governance structure which could be used to drive development. Here the GSC could be a partner through developing infrastructure priority lists for placemaking and facilitating coordination between local firms and education institutions. Key would be to support linkages between health firms and start-up businesses and the local supply of health technology graduates through an “ecosystem” approach.

Integrating economic strategy in the project appraisal and assurance process could unlock further economic benefit from new infrastructure

Narrow approaches to infrastructure appraisal means we are missing opportunities to deliver economic growth through infrastructure.

The current approach to infrastructure appraisal in NSW is to test the impact of a project on existing and projected patterns land use. The impact of one project in terms of higher land use development comes at the expense of another part of the city as the modelling assumptions assume no additional population or employment growth is induced to the city because of a transport investment. This means that appraisals are not capturing the true impact of their potential benefits on society in terms of driving higher order economic activity.

For example, if a package of rail investments in western Sydney, such as those set out in Future Transport 2056, were to collectively drive a step change in housing supply, or higher order economic development of the three cities, this could feasibly result in additional investment in NSW and deliver more employment than currently anticipated by official population and job projections. Currently our models would not be able to capture or foresee this. To avoid this outcome the GSC and partners could test “alternative economic growth scenarios” that could be induced by some or all projects outlined in the Future Transport 2056. These scenarios could be used in the business case to reflect desired economic outcomes. These outcomes could form part of project objectives and target benefits. This would help focus design, delivery and negotiating expectations.

Integrating economic planning into infrastructure design at a place-based level – for example rail corridor economy wide business cases incorporating a portfolio of infrastructure – would ensure associated infrastructure such as schools, education and even policies such as skilled workforce programs are sequenced at the appropriate time.

A new three cities-focused economic appraisal framework could inform decision-making by ensuring business cases for major projects meet the objectives of the regional economic plan while also meeting NSW Treasury value for money objectives. This broader approach would also help the NSW government lead the nation in integrated economic planning allowing it to better demonstrate national GDP contribution of its projects.

A call to action in delivering an economic strategy

An economic strategy for all of Sydney is a missing piece of the integrated land use and transport planning priorities of the NSW government. The economic strategy is needed now. We need to provide a statement of ambition for Sydney across a variety of areas. We need to leverage major investments to deliver on this ambition.

The GSC has the opportunity to take a strong leadership role in delivering an economic strategy and I provide here a few early actions.

One of the first actions should be to establish a steering committee from across government and industry to deliver the strategy. The strategy should be informed by an evidence base that identifies strengths and weaknesses and ultimately leads to a series of policy directions in agreement across government.

The GSC could develop action plans outlining who delivers what and when across key policy areas. Action plans could be assigned to individual commissioners across their relevant portfolio area.

Key will be to ensure the plan is implementable over the life of the Greater Sydney Region Plan. An approach could be to update the economic strategy on a five-year cycle like the Transport Plan and State Infrastructure Strategy.

This integrated approach to economic development planning represents a key opportunity for the GSC in its strategic planning in 2019 and will help to raise the profile of its region plan.

Luke Thompson is economics team leader NSW at Arup.