This submission has been prepared by the Australian Centre for Co-operative Research and Development (ACCORD) in response to the Regional Business Development Analysis Question Paper. ACCORD is centrally concerned with research and development in relation to co-operatives, mutuals, and the broader social economy.

This submission broadly addresses the approach set out in the RBDA questions paper, and provides specific responses to the fourth area of interest, Attracting Investment. Our comments are based on research conducted by ACCORD over the past 18 months. This research has centred on the role of co-operatives and other social economy organisations in building sustainable rural communities, the significance and potential for community development finance institutions, and the potential for social enterprise in Australia.

Overview

With regard to the approach set out in the areas of interest identified by the Committee, we would make the following observations:

1. Thinking regionally and locally: The notion of addressing rural needs at the level of the region has dominated relevant public policy since the 1970's. Increasingly, however, research and observation suggests that, within regions, significant inequities are experienced, with smaller communities suffering at the expense of regional centre prosperity (see Productivity Commission, 1999; Baum et al, 1999). In recent years, global economic restructuring and shifts toward 'smaller' government in this country have seen a greater emphasis on small communities doing for themselves, with a range of policies and programs (particularly at state government level) emerging to support this approach. At the present time, there is limited integration between regional and local level programs, and across and between different levels of government. Further, there has historically been limited systematic evaluation of the impacts of rural and regional development programs in this country. We would encourage the Committee to 'unpack' the notion of regional development and consider strategies that integrate local rural community business and economic development and top-down regional development approaches. We would further encourage the Committee to consider the importance of systematic program evaluation in supporting an outcomes-based approach to rural and regional business development.

2. An integrated approach to sustainability: We commend the Committee for its recognition that a range of factors - including economic prosperity, social cohesion, environmental factors and governance structures - play a role in influencing the regional business operating environment. It is clear from the range of local and international research available that, just as the wellbeing of rural and regional areas is reliant on the health and sustainability of local business activity, so too are viable rural and regional businesses reliant upon socially, economically, and environmentally healthy local communities. In this sense, any attempts to stimulate regional business activity should recognise community (economic, social and environmental) wellbeing and business sustainability as interdependent factors. This connection is emphasised in the burgeoning international literature on the relationship between social capital and development

3. Encouraging local economic diversity: We note that the areas of interest to the committee focus on encouraging new industries and business to the regions, attracting skilled people to regions, and attracting investment to regions. While we recognise the importance of encouraging business and finance to move to the regions, we would respectfully submit that this dominant focus on attracting external business, people and finance into rural communities does not address the importance of local ownership and existing local capacity (including human, social, intellectual and cultural capital) in stimulating business development and community sustainability. Australian and overseas research on why some rural communities thrive while others fail is consistent in finding that a critical feature of survival is a diverse local economy with high levels of local ownership. Indeed, reliance on a single industry or employer, particularly where that industry/employer has no roots in the community, is a significant predictor of community - and, therefore, business community - vulnerability. We would encourage the Committee to consider development strategies that stimulate the diversification of local economies within rural Australia, through niche marketing, development and promotion of emerging local industry, and value adding at source.

4. The importance of local and community ownership: On the issue of business ownership, we note that local ownership of business activity and infrastructure - whether by individual residents or collective ownership by a significant proportion of the community - has the benefit of preventing 'leakage' from local economies. Quite simply, business owners with a stake in their local community are more likely to be responsive to the needs of that community. With regard to collective ownership - through co-operatives, associations, and companies limited by guarantee - an additional benefit is community control over critical resources, which provides greater flexibility to direct resources to meet broad developmental objectives. We encourage the Committee to recognise that the investor owned company is not the only viable business form. There is ample overseas evidence, and some from Australia, that social enterprises, or nonprofit, community owned businesses, can play an important role in strengthening local labour and service markets. The concept and practice of social enterprise is better developed overseas, but Australian examples can be found among cooperatives, registered clubs, business services, credit unions, and friendly societies. Such enterprises are deeply rooted in their communities and can utilise the entrepreneurial drive of local people to build community (financial, human, intellectual and entrepreneurial) capacity.

We recommend to the Committee the White Paper, Social Enterprise: a strategy for success, released in July 2002 by the United Kingdom Department of Trade and Industry, for a fuller explication of the potential of social enterprises and a range of government policies to encourage them.

Attracting Investment

On the matter of encouraging local business and enterprise capacity, it is necessary that business, including social enterprises, have access to finance. Rural and regional communities have faced declining financial services, which has had negative multiplier effects on local and regional businesses. Small business and social enterprises continually face difficulties accessing finance because of lending and collateral requirements, lack of institutional understanding of their businesses and decreasing financial services. In response to sections 4 and 5, we would make the following observations and recommendations:

• Meeting local business and social enterprise finance needs: The capacity of locally owned businesses and social enterprises can be enabled by the location and creation of local financial institutions that understand and help their businesses (e.g develop business plans or look at alternative sources of finance to expand and invest), collateral difficulties, and business cash flow difficulties. Recent years have seen a huge decline in banking services that have not been replaced by services that understand or cater for the needs of businesses (Rural Transaction Centres and Giro Post institutions do not cater for businesses).

• Innovative approaches to financing business development: Innovation is required to build local and regional finance capacity and stimulate related business growth. The 1994 Kelty Taskforce (Taskforce on Regional Development, 1994) developed a number of innovative recommendations on financing regional development that were never fully implemented (apart from pooled development funds). Those recommendations which seek to strengthen local regional partnerships and organisation should be re-investigated and re-considered in order to meet local and regional finance needs.

• Reinvesting in our regions: The 1999 Senate Standing Committee of Economics, Finance and Public Administration (SCEFPA), Regional Banking Services - Money Too Far Away detailed the declining nature of regional banking services (a trend which has continued to the detriment of regional and local business communities). It also mentioned, but failed to fully consider, the policy initiatives in the USA with regard to community reinvestment. Both the UK and the USA governments have developed a range of policies to promote community development finance initiatives and combat financial exclusion of disadvantaged groups and enterprises. In the USA, the 1977 Community Reinvestment Act has been successful in leveraging private capital into disadvantaged communities. In addition, the creation of a Community Development Finance Institution (CDFIs) fund in 1994 and various other tax and venture capital programs have provided resources for community development finance. In October 2000, the UK Treasury accepted the Social Investment Taskforce's five key recommendations to create wealth, economic growth, employment in its under-invested and poorest communities through the adoption of a Community Development Tax Credit, a Community Development Venture Fund, greater disclosure of lending by banks, greater latitude and encouragement for charitable trusts and foundations, and support for CDFIs.The USA and United Kingdom community development finance initiatives should be further investigated with respect to prevailing social and business financial exclusion experienced in Australian rural and regional communities.

We recommend that the requirements on financial institutions to serve local and regional business needs be reviewed, with the view to making business finance more easily available, especially in remote communities and those far from metropolitan centres.

We recommend that serious consideration be given to community development finance policy initiatives occurring in the United States and the United Kingdom, especially supportive tax incentives, regulations to encourage social banking, and financial institutions rating systems to measure lending arrangements with traditionally excluded community and regional enterprises.

• Encouraging service obligations in existing financial institutions: The Money Too Far Away report drew a number of conclusions on the social and community service obligations that banks and financial institutions have towards their local communities and customers. These conclusions should be followed up with proactive policy recommendations to ensure that financial institutions have community service obligations written into their charters and business and lending objectives.

• Measuring the contributions of rural and regional business: Reliable data on the economic activity and financial capacity of our rural and regional business communities is critical if we are to understand the contributions they make to our economy, and if we are to identify how best to support their growth and development. There is currently a lack of information on businesses in regional areas, which means an inability to measure the economic growth and contribution of regions to the state and national economies. In addition, regions have no accessible sources of information about their financial capacity from banks or non-bank financial institutions. We would suggest that this serious oversight be rectified to assist planning and strategies to increase, harness and create local community financial capacity. Concerns about the availability of credit and finance to lower income borrowers and communities and to small business and farms are long-standing. There is no available data on credit or loans to small businesses and regional communities. The Commonwealth should investigate the possibility of obtaining better data from banks and non-bank financial institutions in terms of household and business loan and non-loan data, by postcode and regions. The ABS, Reserve Bank and APRA currently do not collect such information, nor have any directives to do so.

We recommend that greater government resources be devoted to collecting information about businesses and financial information at the local and regional level and from banks and other financial institutions regarding loans to small business and regional enterprises

References

Baum, S., Stimson, R., O'Connor, K., Mullins, P. " Davis, R. 1999 Community Opportunity and Vulnerability in Australia's Cities and Towns: Characteristics, Patterns and Implications University of Queensland Press for Australian Housing and Research Institute, Brisbane

Productivity Commission 1999 Impact of Competition Policy Reform on Rural and Regional Australia. Productivity Commission , Canberra.

SCEFPA 1999 Regional Banking Services - Money Too Far Away Parliament of the Commonwealth of Australia, Canberra

Social Investment Task Force 2000 Enterprising Communities: Wealth Beyond Welfare Report to the Chancellor of the Exchequer. Social Investment Forum, London

Taskforce on Regional Development 1994 Developing Australia. A Regional Perspective A Report to the Federal Government by the Taskforce on Regional Development, Canberra