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Competition or Collaboration: Local Eoconomic Development, Sustainability and Small Towns

Dr Kevin O’Toole

Deakin University


This paper sets out to explore the public policy processes at local level in south-west Victoria. After a brief discussion of the place of south-west Victoria in the economic global world and within the national and state policy processes, the paper then discusses the place of local autonomy in small town development. Crucial to the discussion of small town survival has been the place of local economic discourses that in their own way subscribe to the very processes that have led to their demise; namely marketisation. The paper takes up this issue and then focuses on a rediscovered discourse of community development, seized upon by local groups in an attempt to stem the tide of decline. The paper concludes by arguing that succumbing to the market principles of local competition is a likely way to further demise and suggests that a more sustainable strategy is to focus on forms of local and regional cooperation that rebuild the rationale for the existence of the towns. A central part in this process is the ability to develop a strong civic culture.

Historical Context: Globalisation and south-west Victoria

The negative impact of economic globalisation on small localities in Western nations is well documented. Decisions taken by large corporations to abandon production in rural setting in Australia are easy to find as recent plant closures by large food processors in south-west Victoria attest. The impacts on small rural towns are variable depending on factors such as size, local economic diversity and a range of other resources. But to limit the explanation of small town decline to decisions taken by corporate enterprises is to accept a narrow determinist view of the processes involved. As this paper argues south-west Victoria has been influenced by the course of economic globalisation over the past two centuries. However, economic globalisation is more than the decisions of large corporations. Accompanying and supporting corporate power has been an economic discourse that pervades whole areas of life, including public policy.

According to McGrew there is no theory of globalisation simply a plurality of accounts (McGrew, 1999). For many the term globalisation indicates the greater interconnectedness of the international world:

  • The growth of technologies that link people more directly to other people in other parts of the world through computer, communication or transport facilities.
  • The expansion of service industries such as accounting, law, finance, insurance and consulting across the international arena.
  • The development of international industries such as fast foods that are not tied to any one national economy.
  • The integration of different industries such as the car industry across national borders.

The prominence of the term globalisation has been primarily prompted and imbued with an economic content (Fine, 1999). But the term can also be used to indicate international interpenetration in other forms such as political, cultural etc. (McGrew, 1999).

For some the process of economic globalisation is not a new phenomenon and needs to be put into its historical context (Hirst & Thompson 1996). Sassen (1991) argues that globalisation is not particularly novel especially with regard to places like Australia. The experience of south-west Victoria attests to the long processes of economic globalisation. Over the past two hundred years the landscape of the south-west has experienced significant changes. The white invasion that displaced the indigenous people deforested the land to feed the demands of the British textile industries (McMichael, 1984). White civilisation renovated the landscape with its economic and social organisation of small settlements to service the pastoral industry and other new agricultural enterprises. Small towns were established to supply the transport and communication links that served the global markets for textiles.

The organisation of the small towns was based upon models of European social organisation which provided local outposts of the central government (Butlin, Barnard, & Pincus, 1982). The state played a significant part in buttressing the new economic order imposed upon the landscape in two significant ways. First, because private capital was small and limited, public ownership was favoured for large infrastructure as it could attract the necessary resources for such long term ventures (Wells, 1989). Second the state owned a significant amount of landed property, and acting as landlord it collected revenues from its own enterprises, land and customs receipts (Butlin, Barnard, & Pincus, 1982). The result ‘was the widespread public and private acceptance of strongly supportive role of government vis-a-vis major private investment through direct market participation by government’ (Butlin, Barnard, & Pincus, 1982, p. 13).

Because of the limitation of population size and area the incorporation of ‘local government’ in south-west Victoria was virtually limited to townships (Larcombe, 1973). At the same time though restrictions on the property franchise and on rate collection had the effect of limiting local government to smallness in size, population and income, thus reducing its political relevance ( Barrett, 1979). The overall outcome for areas like south west Victoria was a landscape dotted with small towns serving the interests not only of local settlers but also the global market in textiles.

It has been argued that after the second world war a second wave of globalisation began with the transnationalisation of domestic societies (Allen, 1995). The first wave of globalisation had reshaped the landscape of the south west to such an extent that when state support for the pastoral industries began to disappear in the new ‘free market’ environment of the latter part of the twentieth century the buoyancy of industries like wool began to wane. Further, innovations in textile products in the global market subjected local commodity production in wool to increasing pressure. The decline in the number of farms may be seen to result from this process (McMichael, 1994).

The growth of corporate capitalism in Australia saw some expansion of capital inputs into local areas albeit in an uneven way. Corporate investment was located in different ways (Mullins, 1981). Heavy manufacturing located near to the major port of Melbourne because of cheaper costs in terms of transport and fuel (Linge, 1979). When new migrants came to work in the developing industries like motor car production after the second world war they located near these large manufacturing areas in Melbourne (Birrell & Birrell, 1981). Food processing industries were more often located in non-metropolitan Victoria simply because of the location of food production. In south-west Victoria this has been evident in the large investments in the milk industry. More recently corporate investment in south-west Victoria has been focused on the timber plantation industry which is buying up large tracts of farmland to plant bluegums. Ironically, where the first wave of globalisation saw the deforestation of significant parts of the region the new invasion is displacing old pastoral runs with new forests. This is being accompanied by displacement of the white settler population some of whom trace their lineage back to the initial white invasion.

A significant part of the new globalisation has been the pressure to conform to the rules of the international economy which has had important impacts upon the public policies of many countries, including Australia (Stilwell 1997). Federal, state and local governments in Australia have all been subjected to the processes of competition and marketisation (Griffin, Svensen, & Teicher 1999). The extensive application of neo-classical economic policies to the public sector represented a landmark change in the organisation and provision of public services in Australia (Hughes, 1998; Considine & Painter, 1997).

In the 1990s the Victorian local government reform program was driven by the application of competitive theory to the local government service system (Aulich 1997; Albin, 1995; Ernst, Glanville and Murfitt, 1997; Kiss, 1999). Following amalagamations into much larger units local governments were expected to conform to three major factors. Firstly, the 78 Victorian councils were subject to a minimum of fifty percent of their operational expenditure to competitive tendering (compulsory competitive tendering). Secondly, they had to comply with the competitive processes of a large proportion of State government programmatic funding. Finally, local government practices had to conform to the principles of competitive neutrality and to compliance with Trades Practice Act (Ernst & O’Toole, 1999). In south-west Victoria the fall-out for local governance has been significant (O’Toole, 1999).

As a result the place of small towns as adminstrative centres declined markedly. Reform at all levels of government led to losses of administrative functions in small towns. The outcome for small places on the periphery has been the loss of state and federal personnel in public sector jobs. Such a loss of personnel added fuel to the anger of regional Australia that already resented the perception of ‘urban-centric’ policies of state and federal governments (Collits & Gastin 1997). A crucial part of the process has been a decline in local autonomy often aggravated by the loss of local government institutions in the small towns.

Local Towns and Autonomy

Prior to the advent of the Kennett government in 1992 eight small towns and their local rural hinterlands in south-west Victoria were synonymous with local government boundaries. Local decision-making gave these small areas some sense of autonomy and some discretion over their own activity. Rhodes (1981) argues that autonomy hinges upon five major resources:

  • Authority (or legal resources) refers to the mandatory and discretionary rights to carry out functions or services commonly vested in and between public sector organizations by statute or constitutional convention.
  • Money (or financial resources) refers to the funds raised by a public sector organization from taxes, from service charges and from borrowing.
  • Political legitimacy (or political resources) refers to access to public decision-making structures and the right to build public support conferred on representatives by the legitimacy deriving from election.
  • Informational resources refers to the possession of data and to control over either its collection or its dissemination or both.
  • Organizational resources refers to the possession of people, skills, land, buildings, material and equipment and hence the ability to act directly rather than through intermediaries.

When the smaller rural local governments were amalgamated into larger units in south-west Victoria, usually with a larger local centre, many of these resources were lost to local communities or at least to those who wielded power in those communities. The flow-on affects were also felt by different parts of the local community who depended for at least a part of their livelihood upon these resources. For example the loss of personnel was felt not only by diminished economic activity directly but also through loss of capital reserves in declining property prices. But it was the loss of access to local authoritative, political, informational, financial and organisational resources that mattered for the community as a whole.

First, these small towns had invested in them authority (or legal) resources as part of a local state structure giving them power to make decisions on local development issues from planning to public works. While the local municipality may not have been involved in broader economic planning they did have some discretion over local decision making. The local council and its executive was seen as having the power to make decisions for the local community within a given legal framework. That is local government as a statutory organisation of the state government was the ‘legitimate’ decision-maker within given local boundaries.

Such authority also brought with it a range of political and social symbols for the local community. The town hall and its coat of arms was a symbol of local democracy. Local honour-boards celebrating past mayors, councillors and executive officers helped to reinforce the historical commitment to the local place and its community. The role of the mayor in the town gave the local citizens a focus for local leadership and the formal procedures of local council meetings added an air of legitimacy to local decisions. All these symbols, although taken for granted, were part of the local fabric in the community.

Secondly, having the statutory power to raise taxes was an important local resource, but an even greater resource was the grants given local governments by state and federal agencies. While such revenue was not large it did supply an injection of capital into the community that would not otherwise have been available. In some municipalities the state and federal grants amounted to half the revenue for a local government (Municipal Association of Victoria 1989). At the same time local government as a state agency had the ability to raise loans for public expenditure. Again while this did not amount to large amounts of capital it did inject further revenue into the local area.

While the small revenue base of these towns did little other than maintain the existing infrastructure it was a source of revenue under the direct control of the local community. It was also a secure means of capital injection into the town. Once amalgamated into a larger enterprise the small towns were reduced to special pleading for funding local projects and this has the potential to divide policy planning in the larger municipality into geographic rather than functional areas. This has repercussions for local economic planners who are caught between the interests of the municipality as a whole and the demands of smaller geographic units.

Thirdly, local elections served a dual role. On the one hand they served to contain and channel conflict, while at the same time obtaining the comment of the governed. In part this was an important factor that local government played in buttressing the notion of self-determination as a central idea of liberal democracy (Clark & Dear 1948). The local electoral systems helped to internalise the importance of local self-determination. The act of voting focused the attention of the voter on a local entity, which purported to enshrine local sentiments.

The local electoral base gave legitimacy to the role of local government. Local elected and non-elected officials were given the mandate to ensure the future of their locality. In this respect local councillors felt that they could play an advocacy role for their municipality and were able make representations to state and federal governments through whatever channels they could find. Their position as officials of a democratic institution conferred upon them a mantle of legitimacy that entitled them to represent the ‘interests’ of their community.

Fourthly, possession of relevant data and control over either its collection or its dissemination is a major asset for local communities. The use of local information was a central task for local governments in competition for state and federal funding. As these funding applications required knowledge of bureaucratic norms as well as the presentation of supporting data municipalities sought to increase their professional knowledge. Possession of data is one thing, it is another to control its collection and dissemination. Both such processes require personnel and expertise and where they were lacking the extent and quality of the information was also lacking. However, having the legitimacy to collect information on a local basis was an important local resource.

Finally, organisational resources are important in terms of the ability to act directly rather than through intermediaries using people, skills, land, buildings, material and equipment. Small town local government infrastructure was a significant community resource. Council workers and machinery were available for local natural calamities like bushfire and floods. Similarly local council amenities like halls, gardens and sometimes recreational reserves were assets that were maintained by local government. The revenue obtained from ratepayers, grants and loans ensured that there was a continuous supply of funding for maintenance. Paid staff were also available for the maintenance function. Amalgamations and marketisation of local government through privatisation and contracting out severed the old links of the municipality and its community.

Under the new regime local organisational resources have all but disappeared from the small towns. Personnel once associated with local government services have either been absorbed into the bureaucracy of new administrative system located at the headquarters of the new municipality or have left local government and departed the town. These people not only brought with them economic benefits to local businesses, schools, hospitals etc. they also contributed to the skills base of the town. Contracting out of many of the technical and physical services has meant not only the loss of publicly owned equipment but also the depots that housed the local equipment.

Reality and Rhetoric

Overall the loss of local government structures deprived the small towns of south-west Victoria of a significant part of their local autonomy. The loss of authoritative, political, informational, financial and organisational resources took away much of the discretionary power of the local communities. However, while the loss of autonomy has affected many small towns there was not always a congruence between theory and practice. As Rhodes (1981) notes one should not confuse local autonomy with local discretion. In many respects parochial interests were often asserted over those of the interests of the broader community. Local governments were not bound to partake in any expansion of services for their local communities and they often asserted their autonomy by refusing to partake in regional programs that promoted local service expansion. If such needs did arise, they looked to their more urban neighbours to supply the services.

Secondly, expanded services would mean expanded costs, and without some guarantee of a share in state or national taxes, then local taxes would need to rise. Under the existing local tax regime that would have meant expanding the tax on property owners, who would not have received the same direct benefit in services other than physical infrastructure. Accordingly property owners were content to maintain a system of local government that provided the essential elements of local infrastructure. Concessions and rebates in the state and federal structures helped property owners avoid a good deal of their tax burden at the higher levels. At local level no such avoidance schemes existed.

Thirdly, it may be argued that local government was (and still is!) an agent of the state government and this has its roots in the development of municipal government in Victoria (Finn, 1987). Certainly local government was not the haven of political struggle, in south-west Victoria. The political struggles found in the south-west were focused more on state and federal governments, with the concurrent growth of political parties. Local government had neither the power, nor the will to effect much change in the social conditions of south-west Victoria. Many small municipalities were captive to a narrow range of interests usually associated with the agricultural sector. In many instances such dominance if not supported by gerrymanders was ensured by procedural rules such as holding council meetings during working hours to exclude other interests.

Accordingly local government in south-west Victoria served more as an administrative institution than a political institution. The scope of local government was limited to issues that did not encompass promotion of or reaction to change. Constructing roads, drains and bridges did require some political choices, but were usually planned in accordance with the development mentality of the property owners. Issues that involved more competitive politics were left to the state level.

Such “localising” of the central state meant that local government was responsible for developing and maintaining local physical infrastructure, and marginalised from the competitive politics of the centre. While some urban councils become engaged in the politics of reform, the small local councils in the south-west remained firmly entrenched in their ways. This is not to say that local controversies did not exist. In some instances a good deal of local upheaval took place. However these disputes usually encompassed some dispute about locations of public utilities.

Finally, to win the necessary rewards of central funding to supply new services, local governments needed to make an investment in the expertise required. Initially this fell on the resources of existing staff, but as the requirements became more specialized, more staff were needed to carry the load. Local governments that did not apply for funding did not expand their staffing and thus did not develop local infrastructures beyond their local revenue pools. Small town based municipalities were often at a major disadvantage in this process. Their existence became one of conserving old structures of local power while ignoring the world around them.

However, the loss of local government status left many small towns without access to local authoritative, political, informational, financial and organisational resources. Some of the small towns have been able to cash in on some specific comparative advantages such as the expansion and development of corporate industries, or closeness to a major centre or local tourist attractions. The initial reaction was to focus inwardly in an attempt to find ‘local’ solutions for perceived ‘local’ problems using the varied discourses of ‘local economic development’.

Local economic development and the discourse of competition

The literature on local economic development has burgeoned over the past two decades as the article celebrating the 10th anniversary of the journal Economic Development Quarterly attests (Wolman & Spitzley, 1996). In Britain the prospects of a coherent policy of local economic development was affected by the patchwork of approaches that have risen and fallen with governmental changes (Wolman & Stoker, 1992) and much the same can be said about Australia (Conroy, 1987). The discourse of local economic development is so pervasive that it has an appeal for both sides of partisan politics. On the left entreprenuerialism offers a way of asserting local cooperation, promoting identity of place and strengthening municipal pride. On the right it supports ideas of neo-liberalism, promotion of enterprise and belief in the virtues of the private sector (Hall & Hubbard, 1998). In both cases it brings the local population into sync with demands of global capitalist economy - notions like ‘think global, act local’ are a major impetus to entreprenuerialism (Hall & Hubbard, 1998).

The neo-liberal approach has emphasised entrepreneurship where all forms of capital are exploited for the main goal of ‘economic development’. There is a shift from ‘welfare’ issues at local level to economic regeneration as the priority policy direction (Hall & Hubbard, 1998). For Harvey (1989) ‘the new entrepreneurialism has as its centrepiece the notion of public-private partnership in which a traditional local boosterism is integrated with local governmental powers to try and attract external sources of funding, new direct investments or new employment sources’ (p. 7). In this respect the new entrepreneurialism has four aspects: creating jobs, expanding local tax base, fostering small firm growth and attracting new forms of investment (Hall & Hubbard, 1998).

Central to this discourse of local economic development is ‘marketisation’. That is the traditional issues of social equity in resource allocation are replaced by notions of competition. When the market principle replaces the social equity principle, the rationality for the distribution of resources is changed to one based upon the competitive strength of the players. Local development groups have evolved to replace the old local government structures in south-west Victoria. But while the old local governments had some sense of autonomy, local economic development associations are indebted to a larger local government institution that has more diverse interests. It is no longer a question simply of negotiating among local interests to obtain resources (Piore, 1995). Where negotiations with outside bodies were once accomplished within an authoritative framework, now the local development committees are special interest groups that can only seek to compete for resources among other small localities

Local development groups lack the formal legitimacy of ‘government’ and are therefore seen as part of their larger constituency. In this sense they have to compete for their resources against others in that constituency at local, state and federal levels rather than be treated in terms of social equity. This puts small towns in competition with one another for scarce resources within the larger enterprise. They turn to discourses of local economic development which also reinforce the competitive nature of their activity.

Even though there is no typology of local economies and therefore no strategy for local economic development small localities still look for ‘models’ that they can emulate. What develops is a local competition between adjoining localities for the economic development dollar. While the local communities wish to maintain their own local identity in their own surrounds what happens is that their town is transformed into a commodity (Pickvance, 1990). One strategy is to try to reinvent their past by commodifying the collective memories into activities like tourist ventures and ‘place marketing’ (Cochrane, 1995). The landscapes both natural and built are refurbished in the hope of recalling the spiritual sense of old social practices in what becomes a virtual reality of a past that no longer is ( and possible never was!) (Lovell, 1998). Collections of artefacts from the past (museums) are employed in the present as embodiments and representations of social practices that are recreated to give meaning to the present sense of local identity. But while activities like tourism are touted as a means of expanding the local economic dollar it is doubtful whether the smaller rural areas are gaining much benefit from increased international and national tourism (Faulkner & Walmsley, 1994).

Small community groups are expected somehow to develop local economic development plans for economies of size that are often too small to be viable. The groups are expected to involve themselves in marketing a range of aspects in the town, looking for ways of expanding existing businesses and initiating new ones or creating employment. The issues of training or innovating through research do not reach the local agenda as such expertise is generally not available at the community level. Research and development funds are more often than not tied up by the big institutional players like universities, research corporations or other large sectoral groups. Where community funding is available for research it is dispersed to the consultancy sector which often results in ‘template consultancy’.

For Fasenfest ‘communities struggling to rediscover the road to economic viability cannot rely solely on those very mechanisms that are the source of their current decline’ (p. 178). In other words self-reliance approaches that concentrate on the marketplace solely do not offer the communities of small towns much hope of survival unless they have some competitive advantage in the wider market place. Even if there is a competitive advantage it is more often than not utilised by corporate activity which is controlled from outside. Indeed there is no guarantee that an existing competitive advantage will retain a sustainable community into the future.

From Competition to Community

Kirwan (1987a) suggests that one way of classifing local economic stragegies is that outlined by Alsen & Nilsson (1985). They distinguish between preaction, reaction and proaction. Preaction refers to preparatory action capacity building and covers such things as: information, analytical and forecasting capacity; technical and managerial capacity of local enterprise; economic and technical competence; fostering of linkages between research and development and new production; and the training of the labour force (Kirwan, 1987a, p. 21). Reaction refers to actions taken by local municipalities in response to business demands and covers such issues as: providing direct financial support; assistance with different cost elements like infrastructure, training programs; assistance with technical and professional services; financial assistance or purchasing infrastructure from businesses threatening to close (Kirwan, 1987a, p. 22).

Proaction refers to actions taken by municipalities or local development groups on their own to support local economic development and cover such issues as: removals of barriers to enterprise, expansion and employment; fostering cooperation between existing businesses; supporting product development or technological innovation; establishing local development corporations; supporting and encouraging the development of new companies; and procurement programs that help the local economy (Kirwan, 1987a, p. 23). Community banks are a current example of proactive local development in which local communities raise local capital to sponsor a local branch of a banking corporation. A similar government sponsored program was the community bonds program used in Saskatchewan, Canada (Parsons, 1993).

The newer discourses of community economic development have embraced different aspects of preaction, reaction and proaction. The emphasis in the community approach is focused on the development of social capital which ‘refers to features of social organisation, such as trust, norms, and networks, that can improve the efficiency of society by facilitating coordinated actions’ (Putnam 1983a, p.167). In this sense ‘community’ entails the protection and where necessary the redevelopment of those institutions which sustain the health, education, economic opportunity and social security of citizens (Sullivan, 1985 p. 32). Essentially it is argued that a community in which civic culture is strong is ‘a precondition for economic development as well as for effective government’ (Putnam, 1993b, p. 37). In this instance civic culture or what is termed ‘civil society’ is seen as something that is separate from the domain of the state and important in the development of local communities. At the same time however the state is deemed to be central to facilitating a civic culture, in that it can supply the resources to develop the environment for community participation (Krygier, 1996).

In the case of south-west Victoria there are a number of strategies that may foster a civic culture. Within municipalities where wards are synonymous with small town communities, including their hinterlands, election of the ward representative may be connected to the local development groups. That is the local electoral process lost in the amalgamations can be reinvigorated through the ‘local’ election of development committees. Local councillors can emerge from the local electoral process as representatives of their communities. Where local politics was once synonymous with local geography now the local is expanded to include new and larger geographies. In one sense the increased competition for election may lead to representatives who are more focused on their electoral chances and thus enhance their approach to pork-barrelling for the local town. Local councillors become advocates within local government rather than advocates for local government. However the success of the locality will not be achieved through competition for resources but in expanding the opportunities of the larger enterprise.

Where local communities are not connected by local government boundaries there is also scope for collaboration. Local development groups given legitimacy through local electoral processes can also form partnerships with other localities to form what may be termed ‘clusters’. That is representatives from localities can meet with one another to build the requisite networks of communication which are an important ingredient of regional economic processes to ‘provide the latest products, machines, know-how and information’ and they must be ‘reliable and trustworthy’ (Kamann, 1991). While the initial schemes may not be grandiose, unless there is a greater degree of networking between localities rather than competition then any developments will be small and fragile in the long term (Syrett, 1995).

Improved education is seen by some as the single most important local economic development activity for local communities (Krumholz, 1991, p 298). Further, education is considered to be more effective if it is coupled with reinvigoration of community associations (Putnam 1993b). In this sense education is not formal education or skills production but rather the ability to refocus local cultures outwards. That is local development processes also need the assistance of governments at local, state and federal level to supply the necessary community development personnel to facilitate the expansion of local networks on a broader scale.

The viability of small towns is not just a matter of whether they are necessary for the exigencies of economic globalisation. There is also the issue of the health and well-being of citizens who live in these places. Small towns that focus on marketisation of their locality and do little to build their local civic cultures will most likely fail in the competitive market place. Isolating ‘local economies’ as if they are independent of the larger environment in which they function does little to develop a sustainable future. Building civic cultures within and between small areas at least gives the local communities a chance to reinvigorate the authoritative, political, informational, financial and organisational resources required to establish some sense of autonomy in the global world.


Where many small towns in south-west Victoria were once the lifeblood of local communication and transport their role has now changed. Many of those who remain in these small towns are not willing to let their communities die. Whether this is a sense of belonging to a locality or an identity based around community values there is a strong commitment to rebuild the social and economic capacities of these towns. Where they could once rely upon a local state to supply basic infrastructure and capital for local town maintenance they are now largely left to attract new investment through ‘local economic development’ and ‘place marketing’.

These small towns have sought to mobilise local entrepreneurship, social partnership and other local resources to maintain their existence. But a significant issue for them is the lack of access to local authoritative, political, informational, financial and organisational resources. If they seek to develop an economy on a spatial basis of ‘local’ only while not taking into account larger social processes they are in danger of disappearing off the map. By replacing competition with collaboration and seeking to develop civic cultures that reach beyond their own community to larger networks there is hope that these small towns can rebuild their local stocks.


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