State Bank collapse ‘not to blame’ for current malaise

THE State Bank collapse helped knock off South Australia’s strong growth in the 1990s - but is it to blame for the state’s current economic problems?

• STATE BANK: Inside the collapse that crippled the state
• FAMILY: Stepson’s touching tribute to John Bannon
• SPEAKING OUT: ‘The best I could do was not good enough’
• FINAL DAYS: John Bannon’s last ‘superhuman effort’ for his father

A STORM of economic shocks struck South Australia in the final decade of the last millennium, of which the State Bank was the most tangible and memorable.

Strong growth, which had been locked in since the end of World War II, trailed off. It has never quite come back since.

In the hours since the death of former Premier John Bannon, attention has naturally turned to the drama of the State Bank collapse and whether it is to blame for SA’s current economic sluggishness.

University of South Australia Business School Adjunct Professor Dick Blandy, a frequent critic of the Labor Government, said the State Bank collapse was not to blame for today’s troubles.

“I don’t think you can really lay that at the feet of Bannon,” Prof Blandy told The Advertiser.

“It was much bigger. In many ways, the real impact of the State Bank was psychological.

“The symbolism of it going was very significant. It significantly undermined confidence.”

One key chart published in Premier Jay Weatherill’s 2013 Economic Statement tracks the state’s growth right back until the mid-1800s. It clearly reveals three distinct phases.

Until the 1950s, SA ambled along as a largely agrarian state. Growth was slow and volatile. Then came the great industrial expansion of the Playford era as the economy diversified to include Holden, shipbuilding, oil refining, rubber, plastic and other manufacturing.

Despite the oil crisis of 1973 and the closure of Whyalla’s BHP shipyards five years later, the SA economy experienced a super-cycle of growth which ended as Mr Bannon left office.

But the State Bank wasn’t the only factor in play.

It sucked $3 billion from state taxpayers and left future governments with less to spend on stimulus such as new infrastructure or tax cuts.

But the financial collapse came amid a confluence of other events that caused particular harm to an economy with SA’s unique reliance on manufacturing exports and retail consumption.

The reformist Hawke-Keating Federal Government opened up the national economy with tariff cuts in 1988 and 1991, cutting consumer prices but wreaking protected export sectors.

The country also entered a significant recession in the early 1990s, from which the states with larger populations or with significant mineral wealth emerged more rapidly and strongly.

SA experienced a sustained period of low growth.

House prices remained flat in real terms for nearly a decade. Unemployment went into double digits and peaked at 11.8 per cent.

Prof Blandy said much of the reason SA now trailed the nation in key economic indicators was the failure of subsequent leaders to undertake significant reforms to diversify the economy.

“We knew about this in 1992, but we did nothing,” he said.

“That is so awful, that politically we were incapable of addressing this fundamental structural issue with the economy.”