Listener: 18 February, 2012.
Keywords: Growth & Innovation;
Last century when we had ministers of regional development, the policy seemed to be to have greater economic growth in the regions than in the country overall. But these days, a greater emphasis goes on concentrating economic activity in Auckland. This change reflects the realisation that viable industrial growth depends on economies of agglomeration: the clustering together of industries.
Economies of agglomeration arise out of larger locality size, which lowers average costs (as long as the economic disadvantage of congestion can be dealt with). This applies particularly to knowledge-based industries and manufacturing, and comes about mainly because of specialisation in labour markets and business services, as well as technological spillovers (because knowledge cannot be contained exclusively in bunkers).
If we want certain sorts of economic activities – especially knowledge-based ones such as biotechnology, finance and advanced information technology and manufacturing – to survive in New Zealand, we need localities of economic concentration. Only Auckland is near the minimum size for international success. For some activities it may still be too small, although biotech in Hamilton is probably viable within a greater Auckland. Meanwhile, Tauranga is probably going to end up the port of Auckland, because the Waitemata Harbour is too shallow and too cramped.
So the region of urban Auckland is not just the CBD or even the supercity: it includes the provincial cities around it. How big is Auckland’s region? One rule of thumb is that it covers anywhere you can truck from overnight, which is almost the whole of the North Island, including Wellington. So boosting Auckland benefits all of the North Island, providing the connections – rail, road and broadband – are maintained and upgraded. (If our seat of government were to move – to, say, Canberra – Wellington would become a much smaller city with an economic core of tourism and transport. But while the government remains there, information management may be a city specialty.)
What about the South Island? A strong Auckland means Mainlanders may be visiting their grandchildren in Auckland rather than Sydney. But across Cook Strait is certainly not within trucking distance of Auckland. And although Christchurch cannot offer the “full menu” of Auckland – its population is about a third of Auckland’s – it offers the possibility of a cluster of industries that would not survive anywhere else in the South Island.
When I raised this some years ago, the fathers of Christchurch were not interested. The city was booming with tourism, the dairy industry and a host of small-to-medium-sized export-oriented businesses. (It is strong in IT, but weak in biotech.) The earthquakes may have jolted the city fathers out of their complacency, although they’ve severely overdone it. The focus today, understandably, is how to reconstruct the city infrastructure. This is a real issue about which an economist has not a lot to say (except it is going to be bloody expensive, and the human costs may be higher).
But at some stage the city is going to have to consider its economic future. There is a concern that while some of the population has been leaving the city, so too have businesses. Some have moved south to Timaru and Dunedin, more to Auckland, a few to Wellington and Nelson, and some to Australia. Although the South Island will be glad of any retention, without a thriving Christchurch, the Mainland’s prospects are limited.
To understand this, suppose Auckland was hit by a volcanic eruption and businesses moved to Sydney. Hamilton and Tauranga would get some of the Auckland jobs, but ultimately their economies would suffer without a booming Auckland feeding them opportunities. The same applies to Dunedin and the South Island’s other urban centres if Christchurch stagnates or contracts. Dunedin’s population is less than a third of Christchurch’s, so it is not big enough to lead the whole of the South Island. One may hope it will be a significant adjunct to New Zealand’s biotechnology prospects but, as well as Auckland, it needs a prospering Christchurch to do that.
Or it may be that the South Island will have to settle for being a rural Arcadia, beloved by tourists, with the odd tertiary institution in a pastoral setting.