New Zealand used to be about equal opportunities. Not anymore – Shamubeel Eaqub

Principal economist for the New Zealand Institute of Economic Research, Shamubeel Eaqub, wrote a book because he saw pain and loss of hope in different parts of New Zealand beyond Auckland and Wellington.

He wrote, “If we rank our regions internationally, Auckland and Wellington are comparable to France and Finland. But the smaller regions look like Timor-Leste (Northland) and Greece (Manawatu-Whanganui and Gisborne)…many local economies are stagnating, some are faced with grave decline and just a select few are advancing.”

Eaqub spoke at the Northern Club in Auckland last week about the forces driving this regional inequality.

THEY ARE UNSTOPPABLE

Eaqub says the provinces are in decline because of unstoppable forces, outlined below, which are in fact speeding up.

“The last 50 years of neglect of regional economies and livelihoods can’t continue… people in some regions are trapped in dreams that the best they can do is the DPB… they are resigned,” he says.

“New Zealand used to be about equal opportunities. Not anymore. And Southlanders couldn’t afford to come up to Auckland anyway with the housing prices, which means they are denied the opportunities available in the large centres.”

LOOK AT THE DATA:

  • Wellington and Auckland have a huge range of incomes from low to high, whereas the incomes in the regions are largely low across the board.
  • While New Zealand’s population has grown hugely in the same period, New Zealand agriculture employs as many people as it did 100 years ago. This is the result of specialisation of technology, industries and transport. This has contributed to the flocking of young people to cities for jobs.
  • Over the last 10 years, 80% of new jobs were created in Auckland, 20% in Canterbury.
  • To cross-pollinate ideas, people need to be close together – for example, this is what’s enabled the rapid growth of Auckland, and future growth will continue here. That’s why you can’t just export jobs to, say, Hamilton.
  • Wellington and Auckland have economic complexity which makes them resilient. Many regions are focused on one narrow industry which makes them vulnerable and exposed to shocks. This difference makes national economic policy-making hard too: Auckland and Wellington are in their own hemisphere with different economic pressures to the rest of the country.
  • 80% of growth in New Zealand is now is in the service sector. This means we have atomised our economies into contractors, for example Xero, and that’s why cities are so powerful because they enable this. And outside of centres with tertiary institutes, it’s very hard to create a hub (e.g. a biotech hub) if you don’t have a healthy service sector to support it.

TECH, URBANISATION, GLOBALISATION AND AGING

These are the four forces responsible for the widening gap between the centres and the regions.

Tech: every new technology is becoming adopted more rapidly than before, and falling away faster too. Likewise with ideas and companies. But this is terrible for economies that rely on labour. It leads to redundancy: this is what we see in the dairy sector for example, with the milk transported long distances for mass processing, eliminating the jobs for small centres. In hindsight, even though a lot of technology was hailed to bring death to the city – teleconferencing, email – it has instead caused the ascendency of the city. Because we are social monkeys.

Urbanisation: The rural population growth is zero in 100 years – all the growth is in the centres. This trend won’t stop, launching us towards a very different future. Can we fight it?

Globalisation: This disruption is destroying our old sectors that used to employ many people in the regions. For example, we now get our clothes made in Vietnam and Bangladesh. The labour shift to these places will only speed up, hollowing out NZ jobs further. It’s actually coming around full circle: the economic centre of gravity moved from the East in AD1000 to Europe and now back the East again. Expect to think of China as the centre by 2025.

Aging: There will soon be only old people left in the regions. Over the next 10 years, baby boomers will pressure our economy. Young people are already voting with their feet and leaving the regions. There will be no money to replace big infrastructure like sewage and highways. Councils will hike rates to pay for them, but the populations will be retirees.

EAQUB’S TAKE-HOME POINTS:

If there is an opportunity, it will attract people. But interventions should only be made to resolve market failures, and only if a community has a credible chance to build a self-sustaining cluster.

We also need to ask ourselves: what is success? Is it growth? Is it resilience of economy?

We need to either: unshackle growth, for example sort out the Auckland housing crisis and create an efficient transport link between Tauranga and Hamilton to Auckland, as a catalyst. The alternative is to work out how to engineer a graceful decline of the regions – Auckland shouldn’t need to subsidise their infrastructure.

Eaqub wants to change BBQ conversations, not the government’s mind. If New Zealanders don’t demand change, it won’t happen. Government won’t win votes on the intergenerational stuff, but maybe that’s what we need to think about.

X