|Index|Introduction|Welcome|Programme|Workshop streams|Plenary Speakers|Plenary Speeches|

Government & Regional Development

Lewis Holden

Ministry of Economic Development

Speech Notes

Over next few minutes I want to discuss where regional development fits in the government's overall approach to economic development, and the challenges and opportunities we currently face.

I want to start with an assertion that to all here will qualify as one of Wynne Raymond's blinding flashes of the obvious, but which remains surprisingly contentious in some quarters. Regions and regional development are key drivers of New Zealand's overall economic performance. Clearly regional development is about more than growth, but I do want to emphasise regional development as something quite different to code for redistributing resources from wealthier to poorer regions. The government's goal is to help provide the conditions for maximising the potential of all of New Zealand's regions.

Moreover, many of the issues that are key to economic development at the national level are also key at the regional and local level. Size and distance from major markets, for example, are major challenges for the nation's economy, and are likely to be an even bigger challenge for businesses at the regional and local level.

The Growth Challenge

We're holding this conference at a time when conditions are relatively good in New Zealand's regions. I don't want to be a prophet of doom, but- as this graph shows - we've a long way to go yet. NZ had declining relative living standards through to the end of the 1980s. In short our per capita income growth relative to other OECD countries was disappointing.

Since the early 90s our relative decline has halted, but it is by no means clear that New Zealand is closing the gap with the rest of the OECD.

Trend in Income per Person

Full size image

The challenge the Government has set means doing better than the OECD average over a sustained period.

Our regions are key to achieving higher national economic growth and to getting us back into the top half of the OECD. And we won't achieve this by simply shifting resources around. Indeed, if regional redistribution was to be forced, it is likely that we would be detracting from, not adding to, overall economic growth. That's why a positive, focused approach to regional economic development is such a key public policy issue. And why an approach based on region-envy and destructive inter-regional competition would be a disaster for New Zealand and its regions.

Levelling up (1)

This is not to say that focusing efforts on the lagging regions is unimportant: if we can lift the performance of the low performing regions to the average - what in the UK is called ?levelling up? - this would not only improve the position of people in those regions, but would also enable us to make significant gains as a nation as well as.

This graph focuses on income levels by region. Overall a pretty healthy story, but one which still shows some significant divergence in incomes.

Average Weekly Income (July Quater)

Full size image

Failure to realise economic development potential in all regions means significant development opportunities will be foregone. And we all know that this, in turn, will have social and, possibly, environmental consequences.

Levelling up (2)

But the regions that are growing are important too. Auckland matters: it's nearly a third of the national economy, it has significant population growth and growth pressures; Auckland has the biggest concentration of businesses (large and small) in NZ; largest local authorities in NZ, and it has major infrastructure investment - but it's not performing as strongly as it could.

Regional Shares of GDP

Full size image

Indeed it has been suggested that most - if not all - of the gap in performance between New Zealand and Australia in recent years can be attributed to Auckland's performance compared to that of Australia's leading cities.

Growth Challenge for Regions

But while arguing the case for addressing the growth challenge for all our regions, we must recognise that the factors affecting economic performance differ between and within New Zealand's regions

Economic underperformance in some rural areas is directly related to distance from trading partners and access to markets. This leads to business and population relocation, leading to a loss of critical mass in skills, business goods and services and government services. This - especially when combined with some of the factors mentioned by Paul Collets - can create a downward cycle of further population loss.

Quite different problems are evident in urban regions. Regional growth projections point to future growth being largely concentrated in urban areas (Auckland, Wellington, Canterbury, also Bay of Plenty / Tauranga) and largely driven by population growth. Continued strong urban migration can lead to pressures on urban infrastructure and to congestion and pollution. New Zealand cities also have low income areas and pockets of deprivation that impact on urban economic growth, as well as contributing to social isolation and deprivation.

So what are the conditions that will drive national and regional economic growth?

Productivity challenge (1)

Productivity is a key driver for building long-term sustainable economic growth.

In short, what we need to do is to:

• Increase returns on labour and capital inputs and improve the technology we use.

Easy to say, more difficult to do.

Productivity challenge (2)

The Government's Growth and Innovation Framework is one way that government is responding to NZ's poor economic performance, including concerns about productivity. This framework provides a blueprint for economic growth in New Zealand and its regions. Indeed, one of the key drivers behind the framework - a concern to overcome our ?handicaps' of small size and long distance from markets - is even more relevant for many of our regions than it is for the nation as a whole.

It recognises that, while there is always room for improvement, NZ has generally solid foundations (in terms of micro and macro economic policies, our legal framework, the strength of our public and private institutions and the quality of our education)

Three key areas have been identified as being important to achieving higher rates of economic growth - global connectedness (how to better integrate NZ with rest of world), innovation (how to generate more commercial value from our publicly funded research, and link NZ to technology developed offshore) and skills and talent (how to develop, attract and retain skilled people).

More recently a fourth strand has been added of particular relevance at regional level, and that is improving the quality of our infrastructure.

Innovation

Let's look at one of these - innovation - in more depth.

Innovation - like growth generally - mainly happens within firms. I think this is one reason why there are sometimes calls for government efforts to focus solely at the firm or sector level. This would be a real mistake. It's important to recognise that innovation doesn't occur in isolation. Innovation - like development generally - is influenced by a broader system that includes the network of institutions in the public and private sectors whose activities and interactions initiate, import, modify and diffuse ideas and knowledge.

Location is an important factor in innovation. Innovation is place-based and displays a strong regional component. Firms draw on a whole range of location-specific characteristics and resources, such as the natural environment, the labour force, and physical infrastructure.

The quality of local institutions is also important, including those that deliver education, finance and bylaws. Responsiveness at a local level is essential if innovation in firms is to occur in a region.

Finally, high levels of collaboration (eg. through clustering) are also likely to be needed to drive both innovation and productivity, especially given the preponderance of very small firms in New Zealand.

Regional Partnerships Programme (RPP)

All that I've talked about until now is really the context within which the government's regional partnership programme operates.

RPP

And it is within this context the Regional Partnerships Programme addresses these identified roles for central government. The programme, administered by NZTE:

• works with regional stakeholders to identify and develop their region's unique advantages;
• facilitates the building of the region's capability to seize economic development opportunities;
• facilitates improved governance and building leadership capability;
• provides advice and guidance on regional development best practice from a sustainable economic development perspective; and
• addresses whole of government co-ordination issues that affect regional development.

I want to stress however that central government's role is primarily facilitative. As Paul Dalziel noted earlier today, this is not central planning, or the rebirth of the Ministry of Works and Development. I think now perhaps there's a little more humility in central government. We don't believe central government has the solution to regional development. Like our Australian counterparts we have at least as many questions as answers.

RPP Review - how are we doing?

So how are we going? Well, as Zhou Enlai allegedly responded when asked what he thought had been the impact of the French Revolution, it's too early to say. But MED's recent review of the RPP suggested that it may have contributed to:

• A focus on region-wide economic development strategies (although it's been a struggle and taken longer than originally anticipated, there are valuable products);
• Improved knowledge of a region's strengths and weaknesses and the development of projects aligned with the strengths;
• Improved understanding of stakeholders' goals and processes, and the importance of leadership. Another theme from today is the recognition that it's those regional leaders who have credibility in the local government, business and Maori environments are best equipped to drive economic development.
• Better co-ordination and alignment between central government and local government resources.

RPP - Moving Forward

However the review highlighted areas for improvement. These include:

• the need for a structured and comparable set of indicators at regional and below regional level;
• the need to encourage greater participation by Maori in regional partnerships in order to deliver on Maori economic development objectives;
• the need for critical mass in some regional partnerships. Very small partnerships struggle with lack of local resourcing and capability due to a small ratepayer base.. Currently partnership regions range from three that have populations of over 400,000, down to six that are under 40,000 (with 3 around only 20,000).

RPP - Moving Forward (2)

Success will be greatest where policy interventions are coordinated and market-based. A range of factors need to be addressed, including regional skills levels and industrial composition, regional infrastructure investment, and innovation policy

As a result of the review, over the 12-24 months the regional team at MED will focus on:

• Finding ways to ensure government policy and programme delivery in the regions is integrated and co-ordinated, and based on regionally and locally specific knowledge. This enables regions to be the drivers of their development, with central government playing its role where it can best add value.
• Assisting with efforts to integrate regional economic development strategy into the development of Long Term Council Community Plans Supporting and building-up local leaders who can focus and drive sustainable efforts in their regions;
• Enable regions as a whole, as well as individual businesses, to gain from the creation of NZTE with its unique whole of life services for growing business

In summary therefore:

• Regional economic development is a priority for the government because it underpins national economic performance;
• The government's aim is to lift the performance of all regions - not just the laggards or the large urban centres;
• The Regional Partnerships Programme, introduced in 2000, seems to be having a positive effect on regional economic growth, but there is a need to improve aspects of it. MED (with NZTE) is working on that now.

|Index|Introduction|Welcome|Programme|Workshop streams|Plenary Speakers|Plenary Speeches|