What a difference a year makes. Until recently a major preoccupation of employers and policy makers was how to overcome skill shortages flowing from sustained economic growth and an ageing workforce. This year the scourge of unemployment and recession dominates.

While we are not yet in a technical recession, recession is upon us. A sharp decline in demand for Australia’s mineral resources has hurt Western Australia and Queensland in particular. Skilled job vacancies have taken a dive and unemployment has risen sharply in those states. As the resources boom turned to bust, thousands of jobs in mining and business services have been lost. If my home state, South Australia, had been on the crest of a mining boom - as it was set to be with the expansion of Roxby Downs - unemployment could well have risen to 7 per cent by now. Such is the power of declining demand for Australian minerals from the industrialising giants of China and India. Because of this, Western Australia and Queensland may well overtake South Australia as the states with the highest unemployment rates over coming months.

Not known for its bearish sentiment, the International Monetary Fund has forecast a decline in global economic activity of around half to one percent this year. This may prove to be optimistic given that most forecasts are being revised constantly to keep step with the reality that we are experiencing the sharpest downturn since the 1930s. This depressing prospect means a steadily rising unemployment rate in developed countries like Australia. In response to this, businesses and households normally rein in their spending, leading to a further contraction in growth, fuelling further lay offs - a vicious cycle of decline. Governments around the world are trying to break this cycle through the introduction of stimulus packages, but the problem is that the size of the packages are dwarfed by the magnitude and the complexity of the problem.

The Rudd government doesn’t have the power to solve the problem but it can offset some of the impact through infrastructure investment, direct job creation in the private and public sectors and boosting the incomes of vulnerable households. It has done well to intervene early through the introduction of the $42 billion stimulus package. Failure to do so would fuel a deeper recession in Australia. The investments in public and defence housing and schools will help to generate thousands of jobs in construction, offsetting some of the decline in commercial and domestic construction. The one-off payments to low income households will help to bolster an ailing retail sector, but this will be short lived. Much more will need to be done.

The Age Pension and Newstart allowances should be increased significantly in the federal budget, building on the one-off payments in the stimulus package. A further stimulus package will be necessary later this year as it becomes clear that unemployment will continue to rise beyond 8 per cent. There is no escaping the need for aggressive job creation in this context. An ageing population requires the modernisation and growth of our aged care and health services while global warming requires fast tracking the development of the renewable energy sector and hydrogen/electric car manufacturing. There is also much work to be done in designing and installing stormwater harvesting infrastructure.

As we deal with the consequences of the current crisis we must also deal with its causes at a national and international level. Profit maximisation has driven too many financial institutions and speculators to scale Everestian heights in risk taking. Financial deregulation and laws that fail to curb high risk speculation are the key causes of this. Now these monumental public policy failures are clear - the “free market” model of soft oversight of financial institutions is a licence to create periodic havoc. Financial institutions must be subject to robust regulation if we are to avoid the imprudent lending and rampant speculation that has been so destructive in the United States and far beyond its shores. To stabilise the crisis a new global financial architecture must be forged. Destructive speculation, obscene executive salaries and imprudent lending must be curbed by complementary national and international law.

The short term outlook for South Australia - like the nation as a whole - is bleak, although conditions here are not as volatile as they are in the resource dependent states of WA and Queensland. Typically South Australian economic and employment growth trails national trends by around six months. This suggests that we can expect South Australia to feel the worst effects of the crisis by the end of the year, with unemployment rising to around 7 percent. If the global economic crisis persists well into next year the threat of double digit unemployment will be very real. We will need more stimulus packages to help avert this.

Just as all booms end in bust, a recovery from the depth of recession comes in time. When it does, South Australia will benefit greatly from the inevitable recovery in global demand for mineral resources. Recent investments in defence manufacturing will bolster an otherwise sluggish manufacturing sector. South Australia will continue to be a major exporter of educational services, water resources technologies, wine and grain. The key to South Australia’s future prosperity and sustainability, as elsewhere, is how rapidly it is able to transform its industrial base to respond to the need for a low carbon future. We must not lose sight of this as we grapple with the global economic crisis. In fact we must use the crisis as a vehicle for a more rapid transformation to a low carbon economy.