Regional Development Policy?

The Northland by-election demonstrates we do not have a regional development policy. Should we? What might it look like?

The government’s announcement that it would be upgrading ten one-way bridges in Northland was a response inspired by the forthcoming by-election. Whatever the politics, it well illustrated the feeble state of regional development policy in New Zealand. Once upon a time it was a prominent part of economic policy – there was even a minister of regional development – but about thirty years ago it began winding back.

The reasons were manifold. One was that the policy change we associated with Rogernomics has markedly reduced the number of policy instruments available to central government (there was also a vigorous debate within the economics profession as to whether they were effective). Second, the political process meant that if a concession was offered to one region, it would soon be offered to others so that eventually every region other than the three main cities was being treated as in need of special assistance. Famously, a minister of regional development said his policy was that all our regions should grow at above the average rate.

Third, the shift to MMP has downgraded the importance of winning particular electorates. It is no accident that regional policy raised its feeble head during a by-election in a (potentially marginal) regional seat. It is accidental that Northland is the poorest of all general electorate seats; the pathetic government response to its needs highlights the absence of a coherent regional development policy.

A caveat though. There is a sort of anti-regional development policy. About 15 years ago some economists – led by Treasury, as I recall – saw the need to strengthen Auckland in order that some industries had a chance to survive in New Zealand rather than move offshore to Sydney: head offices, finance, biotech … More recently, following the earthquake, the government has had to deal with the Christchurch region.

A recent book, Growing Apart: Regional Prosperity in New Zealand, by NZIER chief economist, Shamubeel Eaqub, has drawn attention to the regional problem. It is not merely that some regions are poorer than others, nor that the regional mix is changing. Slow-growing regions (generally those that do not have a main city) suffer because out-migration is differential – the young adults leave and the region ages faster than the nation. Additionally a lack of scale means that key services are more expensive, of more limited range and often of poorer quality.

Forty years ago the solution was to establish a new business in the region – famously a plastics factory on the West Coast. Aside from that such a policy requiring government subsidies rather than import licences, manufacturing is not the central activity it was once. Today the New Zealand industrial structure basically consists of export-oriented industries (including factories which process local resources) and service industries which depend on the population – which, in the case of many regions, is getting older and declining.

We seem to have lost interest in developing new resource-based products which can be grown for import – I recall proposals to grow tea. There are resources to be mined; the government has been enthusiastic but unfortunately there are no oil wells near Northland. Tourism is always near the top of the list – on the top of every region’s list. (I don’t get the sense the Minister of Tourism is that interested in his portfolio – casinos and convention centres aside.) Another policy was to locate government agencies outside the main cities but this seems to have ruled out by the pressures on government agencies to save on costs irrespective of the service they are giving New Zealanders together with the ICT revolution.

Eaqub offers no ready solutions, arguing that we need research. Presumably he wants to avoid the usual cheap and ineffective policies based on instant, uninformed reaction. Let me cautiously suggest two economic issues which a research program should consider (there are also social and public service ones).

First, there is a need to look at the resources in the region and ask whether they are being properly utilised. Be careful. One of the reasons some regions’ populations are stagnating is that improving farm productivity is reducing the number of workers on the land.

Second, we need to look at the logic of the Auckland strategy. I am not against it but there is a second phase. Auckland’s growth will lead to congestion so some economic activity will want to move out of the centre. Its ability to do so will depend upon the quality of the transport and communication networks which link Auckland with its hinterland.

I don’t have a strong view on, say, the exact linkages between Auckland and its north (although I do think it unhelpful to focus on recreational and commuter traffic on roads and not recognise they – and railways – are also conduits which truck goods). Probably Northland’s best chance – at least in the south of the region – is to offer opportunities to Auckland businesses to supply from there. Upgrading ten backblock bridges is not a regional development strategy.

One other suggestion for investigation. I am far from persuaded that the port of Auckland can, and should, continue to be as important as it currently is. It causes excessive congestion in the centre of the city against the interests of those key industries which only Auckland can provide. With the right transport links, Whangarei and Tauranga can provide better port services to the isthmus while strengthening the localities and reducing Auckland congestion. Implementing such a strategy is much harder than thirty years ago, before the ports were – in effect – privatised into different forms of ownership. The Rogernomes did not understand the monopolistic nature of infrastructure just as they had a distaste for regional policy.