Presentation to the Sustainable Auckland Congress, 18-21 September 2001, published in The Proceedings of the Sustainable Auckland Congress. (Edited by M. Daly, B. Hill, L. Lucas, J. Salinger, & P. Spoonley, and published by the Sustainable Auckland Trust.)
Keywords Globalisation & Trade; Growth & Innovation
I want to begin with affirming one element of my basic framework. The dominant single feature of New Zealand over the last two centuries has been its ongoing interaction with the rest of the world. Unless one understands that principle, New Zealand’s history makes no sense. Unless one uses the principle one can neither understand the future, nor meet its challenge. Insulationist policies – either practically or indirectly by ignoring the principle are bound to fail.
The principle of focussing on the interaction with the rest of the world means that because Auckland is a significant component of New Zealand its development has to be thought about in the context of the world development. I am glad of the opportunity to be able to raise the issue with a conference on Auckland’s future.
At the moment the term used to summarise trends in the world economy is ‘globalisation’. Unfortunately it has a host of definitions – including ‘international capitalism’, ‘American imperialism’ – or it is defined by particular activities – foreign investment – or particular institutions – IMF, the World Bank, ITO … A more analytic approach uses the definition that globalisation is the consequences of decreases in the costs of distance. That puts the various phenomena which the other definitions use or imply, into a framework, which among other things recognises that at other times globalisation has also been important.
The last great bout of globalisation – many economic historians call it the greatest bout – occurred in the nineteenth century, when railways, shipping and telegraph all contributed to a marked reduction in the costs of moving people, goods, investment, and information. Especially for Europe and its dominion colonies and for North America, the world became much smaller. There was more trade, more migration, more foreign investment. New Zealand, as we know it today, is a consequence of nineteenth century globalisation, not only because the majority of us have ancestors who moved here then, but because refrigeration lowered dramatically the cost of exporting meat and dairy products to Britain, and thus made possible the pastoral economic development which shaped the nation’s history.
Why globalisation is a problem is that cost of distance decreases for different things differently. It now takes microseconds for information to flit around the world, but it is two days for a person to travel the same distance to Europe, albeit considerably less than when my ancestors came here. Shipping there is still in the order of weeks, but not months, while my heart will never leave its turangawaewae.
If the cost of distance is falling why do we have cities? If distance was free, would we not all live evenly spaced out on a plain? Yet nineteenth century globalisation saw an increase in the size of cities, not a diminution, for broadly two reasons.
The first is economies of scale. The costs of transport make it necessary it to locate production units near consumers. As transport costs fall, production can be concentrated in fewer and fewer plants, since the cost of supplying the output to the consumer becomes less important. By itself that does not generate cities. New Zealand’s largest manufacturing plant is at Kawherau, while one of the biggest dairy factories in the world is at Te Rapa, close to their resources. But many plants and businesses need not be, if their transport costs are small. This applies especially for services as well as many manufactories.
Additionally, the interaction of economies of scale with the second phenomenon – specialisation – favours cities. The specialisation may be in terms of the production process including the supply of particular skills and services to a production process, or it may be in terms of consumption and leisure opportunities. Thus Auckland does not just offer more patent attorneys than, say, Nelson, but additionally the collective experience of those attorneys will offer a far wider range of skills than are available to the Nelson inventor. And what does the attorney do for leisure? If he or she is a theatre buff, there are many more opportunities in specialist Auckland than generalist Nelson. Nor should we forget that a city enables a family to live together and yet work in quite separate businesses – another form of specialisation.
So when a firm is thinking about the location of a plant it will tend to favour a large city because it can get specialist inputs and services, and because it is may also offer its managers and workers a reasonable quality of life. There may be other factors – Auckland as a transport hub and as a provincial centre for the top of the North Island region are important – and there may be offsetting ones – skiers are far more likely to want to locate in Christchurch.
Now this interaction between scale and specialisation is extraordinarily powerful, so much so that many of the cities of the world have continued to grow despite congestion, environmental deterioration, and social disarray. However, this growth does not lead to the conclusion that the city fathers and mothers should ignore these downsides. It may well be true that a business is willing to discount the economic and social bads, when considering whether to site a plant in Auckland or Nelson, but that is rarely the real choice. More likely the footloose international business looking at Auckland is also considering Australian cities or even further ashore. Congestion and other bads become very relevant.
The logic is that Auckland should eschew competing for business and jobs from anywhere else in New Zealand. That simply adds to its infrastructural, environmental, and social deficits. Auckland is such a large and crucially placed part of New Zealand that it already benefits from the prosperity of any other region. Sometimes for commercial reasons businesses will consolidate their operations in Auckland at the expense of other New Zealand centres. Aucklanders should regret this, and add that at least the consolidation did not take place in Australian.
Auckland’s vital role in New Zealand’s is in its response to globalisation. Now unfortunately New Zealand does not have a globalisation strategy, and as far as I know there is currently no systematic attempt to develop one. Suppose we did. It would include the standard elements which make a rich country competitive in the rest of the world: a favourable business climate, a highly educated and trained adaptable work force, good infrastructure, a technologically innovative environment, a competitive cost structure, quality macroeconomic management and so on. How would the particularities of the city of Auckland fit into the overall strategy?
Because Auckland is New Zealand’s largest city, it offers potential businesses the opportunity in scale and specialisation which is not generally elsewhere available in New Zealand. There are jobs that Auckland has to attract, because if it does not they will leave the country altogether. So more than any other New Zealand city, Auckland has to see its immediate growth prospects dependent upon it outclassing Sydney, Melbourne, other Australian cities, and indeed other Pacific and world cities for businesses and jobs. From this perspective, globalisation is a plus, because the falling cost of distance means that Auckland is not disadvantaged by location in the way it was in the past.
So how does Auckland compete? To repeat, there are a lot of national economic conditions which are important, but let us focus on the local issues. Can Auckland offer a better deal to internationally footloose businesses in terms of lower congestion, a better environment, and less social decay than the alternatives – is the Auckland lifestyle competitive with other cities of the Pacific and the world?
Obviously the city cannot offer every sort of lifestyle. Larger cities may be able to offer more, but usually at the cost of greater congestion and pollution. But Auckland does not want to win every possible business that might contemplate coming here, just enough to keep it, and New Zealand, prosperous. Thus it needs to evolve a distinctive life style – or rather, to develop its already distinctive lifestyle – to attract jobs. That includes controlling congestion and pollution, ensuring there is a quality infrastructure, and improving the natural and social and cultural and recreational environment. Very often that means spending public money. Providing that is done wisely (and the funding is efficient) that will not deter international businesses. They are much more likely to be deterred by traffic jams, the dangers of social instability and a cultural desert.
The implication then, is there is a place in this world for cities which spend public money eliminating public bads and enhancing public goods. Auckland is one such city. If it does not, going down the alternative path of public squalor in a privatised world, there is little prospect hope for it, or for New Zealand.
So while globalisation may be seen as a threat to Auckland and the rest of the country, the falling costs of distance also creates opportunities. Auckland (and New Zealand) has limitations in a globalised world. But we can turn many of those weaknesses into strengths.