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NZ has zombie towns that need to close — economist

LATEST: ASK ME ANYTHING: Shamubeel Eaqub

 

RAW DATA: The Nation transcript: Lisa Owen interviews NZIER principal economist Shamubeel Eaqub about his new book Growing Apart

 

Lisa Owen: Your book points out there is this huge range of incomes from region to region and you compare some of them to overseas countries, some have the dubious honour of being compared to Greece. Talk me through some of those examples.

Shamubeel Eaqub: Yeah I think in a way we have so much conversation in New Zealand about New Zealand but when you scratch beneath the surface we’re really different. Places like Northland look more like Timor and if we look at places like Orakei in Auckland it’s more like Switzerland, incredibly rich. And those divergences are not new but the gaps are growing.

So why are they so different?

They are very different because they have very different economies, it’s very complex you know. I look at Northland, it’s not benefiting from the growth in Auckland but Waikato is. I look at what’s happening in terms of education outcomes in places like Northland or the levels of poverty that’s entrenched. And you know there’s poverty trap, the lack of opportunity that’s really coming through. In many ways it’s those big global trends that we can’t stop; urbanisation in trend for a hundred years, technological change, globalisation, heavy manufacturing moving overseas. All of those things are going to be compounded by aging population as well. In places like Gisborne, your home town, you know aging is such a massive issue, there are no new families being created it’s mostly people living on their own.

We’ll come to some of that later but I want to know, so you think some of our regions are in real trouble.

I think so. So you know we’ve got low incomes, declining or flat populations and quite often we see very few economic opportunities to engage with jobs and those kinds of things.

So broadly, which ones specifically do you think are in trouble?

Well you know, we look at places like Northland, the East Cape, bits of the central North Island looking really, really weak. Places like Manawatu, Whanganui, at the regional council level they’ve lost nearly 9-percent of their jobs over the last 7 years. These are really troubling times for some of these regions because we don’t necessarily have the levers to pull to stop that from happening.

So what can we do about it then? Because you discuss in this book that cities, areas with a hundred-thousand people or more they do better. Is it just that we need to filter more people into these areas or what is it?

I think you know there’s a whole bunch of things here but not every region can succeed on every measure. We have to decide what does prosperity mean and in many ways I think we’ve lost sight of the fact that what we’re trying to do with economic policy is to create opportunities for New Zealanders. And increasingly we talk about GDP or employment growth on a national level and we forget that there is this big divergence. Economic outcomes are being decided by poverty, where kids are not getting enough education, the outcomes are not good enough, that welfare is not lifting them out of poverty. You know it’s good to have a welfare safety net but is it the poverty alleviation that we’re looking for? How do we help people to have better outcomes in their life not just about will they stay trapped in those regions.

When you talked before about the fact that there aren’t many people going into some of these regions and we need new young immigrants, but most of them come and they go to Auckland. So do we need a policy like Winston Peters suggests that sends these immigrants out into the regions and makes them stay there for 5 years or so?

As an immigrant I can tell you forcing people to go to places where there are no jobs is not a good idea. We have to get people to engage with the economy and by and large people do come for that. And Southland I think has a great example where you know Southland is benefiting from immigration, where population growth is mildly positive after years of decline mainly because the dairy sector is desperately, desperately crying out for workers. But at the same time it’s a massive issue right. You know it’s a very homogenous community; they’ve suddenly got this very confronting change with all these groups of people coming in with different cultures, different backgrounds and different preferences. We have to manage that. So with immigration policy I think that it’s more about, I know it sounds really awkward but assimilation, help people integrate into community. We can’t lose that fabric of community that’s so important for small regional towns that sort of holds them together. And immigration can be helpful in filling some of those gaps but it’s not going to be the solution.

So if people are still going to keep coming into Auckland, there’s always this ongoing debate about the fact that Auckland is too big, a third of the population live here where as in other countries, like Paris 20-percent of the population, in London 20-percent of the population. Do we need to sort of jam a lid on Auckland?

Absolutely not, that would be the worst possible thing we could do. Auckland is our only hope as the big city, the big urban centre that’s going to be the powerhouse of our economy. If we shackle Auckland, it’s not going to turn up in Northland or Waikato, it’s going to turn up in Sydney, Singapore and other places.

So businesses will go overseas?

Absolutely

Rather than be pushed into the provinces?

So the growth in Auckland is going to happen. Whether we allow it to happen in a good way is the question. What’s happening in Auckland is completely different from the rest of New Zealand, in many ways Auckland is our only big city and at one and a half million it’s actually not that big. Even Sydney across the ditch is four and a half million.

But even you in the past have said that the provinces or smaller cities are suffering because of the likes of property speculation in Auckland. And this week we see that Auckland is having massive problems with rates not covering the work that needs to be done, the need for public transport. So what’s that, growth at any cost?

It’s not growth at any cost I think it’s just bad management that’s led us to these issues in Auckland. We need to be far more flexible with our Auckland economy. We know that the future of the global economy is increasingly towards cities, half of the global economy now lives in global populations and cities, 80-percent of global GDP created in cities. So you know to say that we’re going to stop it from happening in the cities is not good enough. So we need to have much better policies on land supply, on easing of congestion, transport, allowing people to live close to work. All of those things are absolutely critical. You know Auckland is that really exciting place where you’ve got this real concentration of skilled people doing really cool thing. You know I think there’s this weird envy in New Zealand where somehow Auckland is stealing resources from New Zealand. I don’t think it is. It’s competing at a different scale and it’s helping all of New Zealand but what’s happening in the rest of New Zealand is not really connected into that. You know it’s not benefiting to the same extent that Auckland is.

So can the Government do anything about that with the regions? Can you create a boom by plonking industry into a region?

I don’t think we can. We’ve tried that with Think Big, you know we’ve got white elephants all around the country. The difficult part of writing this book was we couldn’t come to a solution.

Hang on but are they white elephants because you think about something like Tiwai smelter, I know it’s the centre of controversy now but for decades it’s employed people.

Absolutely and what happens when it closes? And what happens with the big dams? And what happens with the – Phil was telling me about this money printing operation in Whangarei, is that really the best place to be printing money? So we’ve got all these quirky little things we’ve done on the back of it. And for me it’s more about pulling back from the place and saying will the people of that place have an opportunity. And I think the way that we have to do that is much better outcomes in terms of education and that that has to be an absolutely critical link and the thing has to be about welfare policies that do much more in terms of alleviating poverty because -

None of those are quick fixes though, they’re generational thing.

Absolutely generational things, you know this gap in regional economies in New Zealand that’s been developing over a hundred years. If we are looking for a quick solution to this very complex problem it’s not going to work.

So if there are no quick solution as you point out then, is there irreversible decline in some town some towns, does someone need to close the door and switch the light off in certain cities and say ‘it’s a lost cause’?

It’s horrible to say but yes we have zombie towns and some of them do have to close. And you know it’s going to be devastating for those communities but it will be better for New Zealand if we target our resources in places that have some hope of growing and creating prosperity.

So which towns would you flick the switch on?

I don’t have any specific names but I’m sure we could find some around the north.

Come on, you name Gisborne as an underperformer, you name areas of Northland

Yep

Whanganui is another one that you name. So if you are saying there are some places we should give up on, be honest and tell me which ones.

I really, I honestly don’t know. But you know I think about some of those small towns in the central North Island where populations are declining and they’ve got this massive infrastructure deficit that they’re going to have to replace. And you’re like would you really invest hundreds of millions of dollars for a declining population. The answer might be no.

Thank you so much for joining me this morning.


LATEST: ASK ME ANYTHING: Shamubeel Eaqub

Comments and questions
46

He's right. Let the dying towns die. Regional development schemes just prolong the agony, and the eventual outcome will be worse. The world keeps changing - let it.

That's correct. Regional development should happen by itself, or not at all. No man alive, and certainly no political party, has more wisdom than the market. Propped up schemes may bring some benefits, but they will be short term.

Economic correctness of the worst kind. The failure of the market is exactly what is being played out in regional centres

Market Failure is the failure of the market to properly and efficiently allocate resources. Failing regional development is not market failure, in fact it is evidence that the market is working correctly, as those regions are not conducive to efficient resource allocation.

I don't think you actually know what 'market failure' is; the market and its forces are not 'failing' here, merely not delivering what you apparently think they should. If the government tries to force outcomes that are at odds with what people (i.e. 'The Market') really want to do with their lives then eventually you really will have a failure on your hands. Do you recall the USSR?

Spot on Alan. The market will see an opportunity. Around the world, once the elderly retirees have tried the 'glamour' of resort-type tenements in expensive Auckland, they'll opt for the bigger towns with good infrastructure and a decent public hospital....and head for those pleasant hills.
It's happened all around the world for mining towns, steel towns etc.
Stay out of the market if no one's getting hurt. NZ hasn't learned the difference.....both ways.....hopefully, yet. When will we learn?

Often people live regional because they can't afford city regions - what do you expect a farmhand to do if he moves to the city with a family in town? Certainly cheaper to generate sone support for a regional town rather than provide housing in a city centre?

Towns that are dying and don't want to should ask themselves what they are doing to attract businesses and people and not look to government to provide financial incentives to help them stay alive.

Let me guess. These are the same failing towns and cities that we just spent how many billions rolling out UFB too?

If so, then before you turn out the lights can someone please set up a web cam so we can least all dial in to how the sun sets in Ekata-wangamanui-haha.

I farm within P.N. City limits. No UFB available here. Don't believe everything that you read.

Economists proclaim to predict everything, but the predict nothing.

Some should tell them the free markets don't exist, because it doesn't. Ask yourself why they keep teaching this stuff in education? Well it suits the establishment.

Until the world has one common currency, and no barriers to trade, NZ should protect its long term future. Fat chance this is ever going to happen. That means protecting locally owned industry, and keeping skilled employment here. Once its gone, its so much harder to set up.

Imagine if the government centralized its coastal serveilliance in Gisborne. Imagine if the government demanded the fishing quota had to employ nz citizens. Imagine if the government shifted a lot of its conservation office workers to the west coast. Imagine if the government shifted its horticultural research to hawkes bay.

We can only imagine because top level management in government departments don't care for saving money and have no interest in regional develop close to the region which would benefit the greatest. The only interest this management level have is self interest.

I agree.

One solution which would benefit the provinces throughout NZ, decrease housing needs in main centres, whilst creating self-employment for all, creating a multi-billion dollar "added-value" new industry all starts with a little legislative change regarding a natural herb...

Classic UN Agenda 21. Shut down the outliers and move everyone to towns.

Vile liberals and their diversity attack upon the New Zealand people and culture..

This man should be condemmed because he speaks the truth.

How about we stop subsidising Auckland infrastructure like water, sewage. light rail and roads and let the market respond?

I don't believe that the business' which are intrinsically part of New Zealand would go to Sydney as there is no cost saving there

I think instead they might look south to Hamilton and Tauranga and further

Or how about we spend on infrastructure proportionally to where the money comes from? Because I am certain if everty dollar generated by auckland was spent in auckland trhe infrastructure would be world class, rather than spending it on wellington and the south isalnd where income generated doesn't go close to providing the basics for these areas

Ok let's get real here and stop beating around the bush. The regions that are 'failing' or ones that experience high levels of poverty and economic under performance and retrenchment are those that have large Maori populations. Northland, the East Cape, Wanganui and Southern Taranaki. The Eastern Bay of Plenty.

And until people are willing to acknowledge that poverty, economic underperformance, and poor social outcomes in this country are largely a Maori and Polynesian issue then we are not going to get anywhere. You cannot solve a problem unless you are prepared to front it head on. And that requires, in the first instance, describing it accurately and correctly. Those who don't want to do that, or who claim that to do so is racist, are actually part of the problem. They are not going to be part of the solution.

What do we as a country, and what do Maori and Pacifika have to do, in order to raise their lot in life?

Well said. The answer is pretty obvious. The problem is not racial but cultural. Nothing will change until the culture changes and that won't happen until its leaders want it to. Good luck with converting either the Harawiras or the feather bedded Maori elite to a culture of rewarding effort.

Hard hitting but so very accurate. After massive grievance payouts and commercial operations that operate tax free, little or no progress.

Very well said.

...and the solution can't be just "more money" as Maori have collectively received Billions, are worth Billions, yet the problem still flourishes and the solution seems no where closer to being found.

Perhaps encouraging "personal responsibility" might be a better solution.

Around 2010 the percentage of the world's population living in cities of 1,000,000 or more passed through 50%.

Around 2030 the percentage of the world's population living in cities of 10,000,000 or more is expected to pass through 50%.

NZ will not have a city of 10,000,000 or more by 2030, if ever.

Well said. The answer is pretty obvious. The problem is not racial but cultural. Nothing will change until the culture changes and that won't happen until its leaders want it to. Good luck with converting either the Harawiras or the feather bedded Maori elite to a culture of rewarding effort.

In so many ways he is right(and I come form a small town that is dying)

However.....

While the world might be becoming more urbanised NZ is different in it's dependence on primary industry.

Eaqub might think Auckland can survive on it's own but lets see what would happen if (God forbid!) the guts really drops out of the dairy industry.

And a lot of that promary industry is based around those small towns he is talking about

I was born in Whangarei. That may not have gone so well with this kind of thinking.
This dumbass obviously knows better than all the company execs who find a quiet spot for their big factory etc.

Typical economist, a sound bite guy with no answers (so he can never be proved wrong). All doom and gloom.

The government needs to reinvest in the regions. For decades now things have been job centralisation in to the big cities. All these jobs have been lost in the regions, and head offices and regional offices of private companies have followed (as the employment pools dwindle). The government needs to take a lead, and reverse this centralisation. I'm sure, for example, if the IRD was mainly based in Napier, there would be a ton of people that would want to live and work there. This one big employer would encourage more private business to come, and there would be organic growth which would flow into the private sector.

Why do people live in Auckland? A lot do simply because that is where there are jobs. It isn't a 'world class city' or anything remotely close. It is simply the biggest town on an island and this Auckland-focus by repeated governments needs to stop.

Has he ever been to Northland? It is not quite the disaster area he claims. Plenty of vibrant communities - bit of a stretch the Timor comparison. It's like those extravagant claims that south Auckland (broad sweep of arm) is a no-go badlands area. A shallow, tabloid view

Well its not rocket science, you close down the main employer in any small town and people's economic disposition will take a turn, but for the life of me understand why Tainui would staff Sealord with cheap Pilipino labour when this venture could act as a means to get Maori into employment and learn a trade, as with previous comments tough questions have to be asked of those in a position to give the disenfranchised and those living in poverty a hand up but choose not to.

One fairly inexpensive way to encourage regional development and population growth would be for the government to take a lead by declaring regional development zones in say 4 or 5 parts of the country, facilitate an infrastructure master plan, and then simply offer accelerated depreciation for capital-intensive businesses to establish there.
Accelerated depreciation is an extremely attractive proposition to savvy business operators who want to set up or expand, and it costs the taxpayer/government virtually nothing other than deferred tax income, whilst at the same time turbocharging the local economy.

What a lot of people seem to miss is the sentiment amongst the regions that the local population do not wish to spoil their little piece of paradise by slotting in capital intensive (a.k.a. intrusive) industry amongst it.
Whilst we continue to dole out money to these people so that they can continue to enjoy their little piece of paradise 24/7, without actually having to work for it, we are unlikely to lift productivity in those areas.
Tourism is a marvellous thing for NZ and we certainly want to preserve our attractiveness in that regard. However, it will not create work for everyone in the regions and industries such as aquaculture need to be given serious consideration, even if it does mean some sacrifices to our pristine countryside. The key is to find the right balance and to ensure that new industry is innovative enough to prosper, whilst still acknowledging and protecting the environment in which it operates.

The problems Shamubeel Eaqub details are not limited to places smaller then 100 000 people. Hastings and Napier are effectively one urban area with over 120 000 people yet are near stagnant, have high levels of deprivation, low incomes and are forecast to start shrinking. Rather than recognizing the real impediments to progress local politicians seem to believe if they build monuments such as the new $18 million museum in Napier everything will come right but all it's doing is creating an abundance of loss making ventures that must be propped up by ratepayers. Its like a business, if you put the wrong people in control failure is virtually assured.

This is all about economics and economic outcomes. If we really believe "It is people, people, people", we need to change our perspective and ask what would most benefit the people in the smaller towns who lack jobs and job opportunities.
Obviously Government could make jobs in Gisborne, Napier, Northland, West Coast, wherever, if they had the will to do it.

It's not the government's job to "make jobs" - that failed 1970's socialist thinking is what has got rate & tax payers into so much trouble already - funding over-bloated State services.

Just look at the financial mess Len has created with Auckland Council...with his mismanagement of other people's money.

The government's job is to create favorable conditions for commerce to create the business opportunities, from which the employment will flow on from.

but are the councils and business groups themselves working to put that right?

Good one Shamubeel !

An economist with his feet on the ground.

Orakei property might feel like Switzerland today, but could easily be Dublin tomorrow.

I agree that Auckland is wealthier and more productive than the rest of NZ likes to give it credit for, but how much of that is leveraged off the back of property prices? Maybe just the Mum and Dad businesses. And the Audi, of course.

The fact that he refuses to name these zombie towns suggests he hasn't got much confidence in his own research.

The producers of export goods are the ones being hit hard by the high dollar and many of these are based in the provinces. Farmers in non-dairy areas are suffering and their lack of spending impacts on the whole rural community, . The high dollar is being driven by high interest rates and those high interest rates have been put in place to control Auckland's housing bubble.

Its not hard to see that Auckland is a significant cause of the regional decline. Still, that situation may not last - living on top of an active volcanic field can have its downside.

Go back to Bangladesh, please, Shamu.

What does flicking the switch on a small town (or any town) even look like?

Would the Minister of Local Government remove the mandate of elected officials? Would the Electoral Commission simply stop issuing ballot papers?

Oh, maybe it'd be like Muldoon kicking Ngati Whatua off Bastion Point. Bring in the army. I mean, WTF?

'Tough questions need to be asked'. Asking questions is easy. But accepting the answers to them is not.

Notice Eaqub. He's discovered the answers to the 'tough questions'. But in his anxiety to not offend he keeps trying to sugar-coat his replies. Wretched is the man who speaks the truth, for his lot is eternal damnation. Poor Eaqub.

Judging by this interview this book seems to be largely observational with little to no depth of research and no proposed solutions making it the most pointless book ever written. And as for some comments above stating 'you can't drop large industries into the provinces' what do you call dairy and forestry? Last I checked we were a predominantly agricultural economy and while wants based economies linger dangerously close to collapse globally our needs based economy is bandied about as a 'rock star.' Do you think all those cows, sheep and trees were grown and raised in Auckland? Do you think that the people who raised, felled, treated and slaughtered them lived in Auckland? No the people who traded them with international markets did, why? Because the Government moved all their departments there and at the business end of the deal it is easier to have officials that cut the red tape on your door step. I live in a province that used to be one of the largest economies in the country, Government centralisation has slowly killed it and will continue to do so and once all the people have moved off the land and into the cities who will raise, fell, treat and slaughter the agricultural produce we need to prop up our 'rock star' economy? Do you think that rural workers want to live in a townless, communityless, cultureless pasture where their only company is fellow agricultural workers and cows? Auckland is merely the pointed end of a large economic base that is largely provincial, ignore the provinces at your peril.

You have stated the reality far better than most economists seem capable of doing. I've worked in rural centres in several countries and Shamubeel's maarket bleat is now a common theme. My first international job was in a regional development project, funded by NZ, in a remote Thai town. Forty years on that city is a thriving regional and educational centre with an internationally rated university. The population is four times what it was in the 1970s. I wonder if regional development worked so well there because it preceded the false Free Market doctrine we now suffer under.

* This book is just riding off the coat tails of Thomas Pinketty's capital in the 21st century

* Provincial towns arguably have a better quality of life than the city for people who prefer the lifestyle, economists seem to think everyone has the same or rational preferences.

* Economics assumes people make rational choices, sure - in a perfect world.

* Why do some areas benefit from growth in other areas? (demographically or economically) - because of the manufacturing supply chain

* Service industries tend to benefit cities more as this is where concentrations of service skills are

* NZ's real economic growth is coming from exports, dig into the gdp numbers. Ignore property price appreciation, these are just paper profits

* NZ's savings rates are low by international standards, we are a boom and bust economy due to poor monetary policy choices and finance laws. Why? Before where one would save eg 1 years income in the bank for a rainy day, people are spending their savings and relying on easy access to debt against their home (due to increasing prices)

* NZ has what I would describe as a hybrid model of a consumption led economy and an export /manufacturing led economy. We are undergoing structural changes in the economy brought about due to globalisation and the growing middle class in our export markets.

* NZ runs a ballot system in the islands for Permanent Residence, eg 1000 applicants get selected out of a box, at random. Why? To fuel manufacturing and keep wages low - comparatively migrants aren't as assertive with the pay rates as kiwi's, and their individual rights - if you come from Tonga, Samoa, Fiji you know what I'm talking about

* Not to get personal but NZIER, they are good for nothing! Flaunting their economic models when in this day and age big data is more useful for tracking where the economy is going.

* The provinces made Auckland, our dairy industry, no city blokes on the farm, they've paid their dues, and as tax payers we are all equal and everyone in the country is entitled to share in the countries economic gains.

* It's abhorrently disgusting that people play the maori/pacific islander card on this - citing cultural issues. It's NZ's issue, its called CULTURAL INTEGRATION. This country is run by the "white man" and white man policies which in majority tend to benefit the white man - now lets get real about that!