Economic lessons for Adelaide from Denver
In the second article in his series on economic lessons for Adelaide from comparable US cities, Richard Blandy writes about how Denver has built on its strengths to grow its economy and attract highly-skilled workers.
The sun rises over Denver, Colorado. Photo: Sheila Sund/Flickr - https://creativecommons.org/licenses/by/2.0/
In my last article, I wrote about Phoenix, Arizona, and the lessons we could learn from that city’s economic development. In today’s article I am writing about the second American city I visited in May 1996, on behalf of Premier Dean Brown – Denver, Colorado.
In my next article, I will write about Adelaide’s sister city which I also visited on that trip: Austin, Texas.
Phoenix, Denver and Austin were chosen because they were in Fortune magazine’s top 10 US cities, were relatively small (and, therefore, more comparable with Adelaide), and had development issues that were of broad interest for Adelaide.
Altitude apart, Denver – the mile high city – and Adelaide have climatic, geographical and topographical similarities. Viewed from the east, across Cherry Creek Reservoir, the city has a striking resemblance to Adelaide with its foothills behind. It has an attractive and lively city centre, the core of which is a long mall with a frequent and free shuttle-bus running up and down it. It has three quarters of Adelaide’s annual rainfall.
Denver is located in the Rockies in the exact centre of continental United States. This has been an important factor in the development of its service activities, including Federal Government services concentrated in Denver to service the western United States, air transportation and communications.
Denver has done much better than Adelaide in economic and population growth since 1996. The Denver metropolitan area now has 3.1 million residents (56 per cent of Colorado’s population). It has gained about one million residents since I was there 20 years ago. By comparison, the Adelaide metropolitan area now has about 1.3 million residents (75 per cent of South Australia’s population), and has gained about 200,000 residents over the past 20 years, one fifth of Denver’s increase.
Why has Denver done so well over the past 20 years? The reason, as in the case of Phoenix, is that it has been a much better business location than Adelaide.
Denver’s economy used to be significantly dependent on oil and gas until the major oil and gas downturn in the 1980s, although it also had a substantial base of high-tech, defence, communications and financial services activities. The North American Aerospace Defense Command’s (NORAD) HQ was in Denver, for example, along with the Strategic US Command Centre under the Rockies.
Since my visit, Denver’s economy has been diversified by building a pro-business climate structured around nine main industry clusters: aerospace, aviation, beverages, bioscience, broadcasting and telecommunications, energy, financial services, healthcare and wellness, and IT-software.
Exporting has also been seen as an important buffer against a locally-driven downturn, hence national and international cost-competitiveness have been given a high priority by Colorado and Denver.
Life is pleasant in Adelaide for most people, but the young, gifted and talented are leaving.
In 1996, Colorado’s aggregate state tax rate was ranked 48th lowest out of the 50 states.
By 1996, Denver had declared virtually all of its commercial real estate an enterprise zone to enable businesses locating there to qualify for business tax breaks.
It then introduced the following measures for businesses in the zone:
- a federal income tax credit of 3% of the value of investment in equipment.
- a federal income tax credit of 3% of the increase in R&D spending compared with the average of the previous two years.
- a federal income tax credit of $500 for each new employee in a new business.
- a federal income tax credit of $250 per employee if a business covered its employees’ health insurance, and exemption from the 3% state sales tax.
By 1996, Colorado had also created an Office of Regulatory Reform to serve as an ombudsman for the small business community. The ORR identified and eliminated unnecessary and burdensome federal, state and local regulations. In the area of building regulations, for example, regulators were required to help the builders get it right and review committees were set up to prevent the arbitrary enforcement of regulations.
Probably as important as any initiative assisting business was the customised vocational training program introduced by the Colorado Office of Business Development in response to the 1980s economic downturn. This program was directed at training or retraining the employees of any firm that was upgrading its technology. The training was customised to meet the requirements of each firm. Each firm controlled the content and delivery of its own program.
Each firm could choose its own trainers. Each training program was designed and implemented with the direct co-operation and approval of the participating company. The program was delivered on-site, if required by the firm. Companies paid 40 per cent of the direct training costs up front, most of which was eligible for reimbursement. However, companies were required to
return their grant if they failed to maintain the jobs for which the grant had been made.
The spectacular Denver International Airport, opened in 1995, has also been very important to the city and to Colorado. The Federal Aviation Administration strongly supported its construction in order to have an all-weather airport at high altitude in the middle of the country to assist national aircraft movements. The airport can land three planes simultaneously and can draw flights from both seaboards. It is now the fifth-busiest airport in the United States and the 15th busiest in the world.
As was also the case in Phoenix, Denver has made major efforts to ensure that its residents’ quality of life is very high. One of the most often-cited reasons for companies locating there is the quality of life, which makes it possible to attract and retain the most highly skilled workers.
Colorado is strongly marketed nationally as being beautiful and a superb vacation destination. The size of Colorado’s tourism industry is staggering, equivalent, in South Australian terms, to a quarter of South Australia’s GSP - bigger than the manufacturing sector in SA in its heyday. This campaign has not only drawn many tourists to Colorado, but also many people
to settle and/or study there. The graduates who have stayed have created a huge skills base in Denver to support the aerospace, aviation, bioscience, telecommunications, financial services, healthcare and other high tech industries that have expanded so rapidly.
Professional sports are also very significant in Denver, because local professional sports teams are regarded as important to the highly-skilled people that Denver wishes to attract. Denver has a team in the top league in all four major professional sports in the United States: American football (Broncos), baseball (Rockies), basketball (Nuggets) and ice-hockey (Avalanche). The Broncos have a huge fan base in the US and throughout the world and have been to the Super Bowl a record number of times, winning three times. John Elway, Broncos quarterback for 16 years, is a United States sporting legend.
Denver is also a regional centre for culture and the arts, with the Denver Museum of Natural History, the Colorado Symphony Orchestra, strong opera,ballet, and theatre companies, and a strong popular music scene.
In 2015, Denver was named as moves liveable city in the west and the fourth-best metro area for science, technology, engineering and mathematics professionals in America. More than 38 per cent of Colorado’s adult population has completed a bachelors degree or higher. In 2015, Colorado was also ranked as the second-most entrepreneurial State in America.
Adelaide, like Denver, provides a very high quality of life, affordable housing, quality health care, a ready supply of commercial property for lease or purchase, friendly people, a well-educated work force, and many other attributes that mirror Denver’s. Adelaide’s countryside is very attractive, tourism is well targeted and events are significantly supported.
Adelaide Airport has improved quite dramatically since the 1990s. Adelaide Oval is a world class venue. So why hasn’t Adelaide grown at anything like the very fast rate of Denver?
Instead, we are in economic decline relative to the rest of Australia, and have been since the end of the Playford era. Shored up by welfare payments and Commonwealth and State Government handouts, our decline has been managed gracefully. Life is pleasant in Adelaide for most people, but the young, gifted and talented are leaving.
It is madness to expect that a continuation of the Government-led economic development strategy that is associated with our long-term decline will suddenly become successful. We must radically shift strategic gears to become successful again. This will be politically difficult, and will take time. Fundamentally, we must stop believing that any South Australian
Government can pick economic winners (never forget the Gillman land deal).
The appropriate economic development strategy is for the South Australian and Commonwealth Governments to cut business costs in South Australia across the board, to cut business taxes in South Australia across the board, and to cut business regulations in South Australia across the board, so as to induce investment in a spread of prospects across many sectors as
underpinned the rapid economic development of Denver over the last 20 years.
Richard Blandy is an Adjunct Professor of Economics at the University of South Australia, an Emeritus Professor of Economics at Flinders University, and a contributor to InDaily.