Structural Adjustment: sound economics or political football?

The Office of the Chief Economist has released a research paper exploring the effect of structural adjustment programs on individual firms in South Australia.

While organisations such as the Grattan Institute and the Productivity Commission have been sceptical of structural adjustment funds, the Office of the Chief Economist’s report found that firms receiving structural adjustment assistance had positive increases in jobs and turnover with a weaker impact on capital expenditure.

While the research papers stresses the results are exploratory, they confirm the findings of previous academic research reports. Andrew Beer’s examination of international structural adjustment packages found that best practice examples took a long term perspective, anticipated rather than reacted to economic shocks, had strong governance structures, focused on the affected region, sought to build human capital and economic diversification was a partial answer.

The statement that “South Australia’s economy is in transition” has become somewhat of a cliché.  While various measures have been put in place to support or influence this transition, robust assessment that can be used to inform future policy development has been in short supply.

The result has been significant politicisation of responses to economic shocks rather than an informed debate and rational resource allocation to address specific issues. Until this occurs the design and allocation of structural adjustment funds will be defined more by politics than economics.

Written by Greg Ratsch ACEcD