New Zealand's Inclusive Growth Opportunity

By Ben Lucas

New Zealand has a unique opportunity to develop a new model of sustainable inclusive growth that could put very different values at the heart of its economy. The new, Jacinda Ardern led, Labour, New Zealand First and Green Coalition has been in power for a year now. Its ambition was highlighted by the decision of Winston Peters, Leader of New Zealand First, to act as Ardern’s kingmaker on the grounds that the country was ready for “capitalism with a human face”.

I have just returned from a week in the country, talking about inclusive growth with officials and economic development practitioners, as a guest of New Zealand Trade and Enterprise.  In Wellington and Auckland I met with economic development agencies and government officials, and then spent a couple of days at Paihia in the Bay of islands at the EDNZ (Economic Development New Zealand) Annual Conference, where I was the international speaker. The conference was themed around inclusive growth and was a dialogue between economic development practitioners, policy makers and government officials about how to generate greater equity across the country.

There is a palpable sense of optimism, and opportunity but there are some significant challenges to overcome on delivery if the Government is to live up to its promise of improving living standards, and wellbeing across society. The country has an enviably strong economic position on which to build, with annual growth running at an average of 3%, and a growing Budget surplus. What is needed now is to spread economic prosperity and wellbeing more widely across society and the regions. As a Brit, who is a strong supporter of devolution and localism, I am of course particularly interested in how New Zealand, which has the rare distinction of being even more centralised than Britain, can develop a place based approach to inclusive growth.

These are my reflections on the challenges and opportunities which New Zealand faces, along with my initial thoughts on the best approach to delivery.  They are born of my experience working on devolution and inclusive growth in the UK and my, inevitably superficial impressions of developments in New Zealand.

Opportunities and challenges

Perfect storm of political and economic opportunity.  A number of related policy and economic developments are coming together to put inclusive growth centre stage. The new Government took office on a promise to create a fairer, kinder society with wellbeing values at its core.  The Treasury has consulted on a new Living Standards Framework, and will be publishing the outcome of this before the end of the year. The idea is to supplement GDP per capita with wider wellbeing indicators and then to embed them in economic policy analysis (which is what the RSA Inclusive growth commission proposed in the uk).  The framework will be based on the OECD four capitals on intergenerational well-being: Natural Capital; Human Capital; Social Capital; and Financial and Physical Capital. The Treasury has committed to follow this up with a “Wellbeing Budget” in March 2019 that will direct spending and investment towards wellbeing outcomes. In a simultaneous development the Government has also announced the creation of a 3 year, $3bn Provincial Growth Fund (PGF) targeted at ‘surge regions’ that have been identified as needing substantial economic investment to turn around their growth trajectories. And local government is about to have its wellbeing responsibility, reinstated, after this function was taken away from Councils by the previous Government.  Meanwhile, the Maori economy, is growing in size and confidence.

Inclusive growth has emerged as a major challenge.  New Zealand’s strong growth has highlighted increasing inequality, which is why inclusive growth is now such a priority. As with Britain, some of this is about a combination of lagging earnings, low productivity and a housing affordability crisis. But the anatomy of inequality has some particular New Zealand features. Youth unemployment is very high, with 70,000 young people out of work. There are far too many NEETs, especially amongst young Maori and Pacific Islanders, social problem which is characterised as “nephews on the. Sofa”. In addition, there are regions within the country that have been economically left behind, because of industrial change and the move away from some primary industries, such as mining.  And in booming urban areas like Auckland, there is a growing divide between the haves and the have nots, which is increasingly characterised as a tale of two cities, with South Auckland epitomising disadvantage.

A range of different tiers of government, and intermediate institutions that need to pull in the same direction. Like Britain, New Zealand has a centralised system of government, in which local government does not have constitutional independence, and in which ad hoc forms of enhanced decision making have emerged. Auckland is now its own Metro super city, with an elected City Region Mayor, on a merged rather than collaborative metro city model. Wellington has recently rejected a similar move. Local government doesn’t have power over the significant policy area of housing, so not only does this mean that Councils can’t build houses, they can’t enforce affordable quotas on new private housing developments either. Outside the major cities, loose forms of collaborative regional councils have been established with little power, other than the ability for Councils to work together in the interests of their region.  Meanwhile, Maori IWIs with their own substantial land assets, and funds from Treaty settlements (so far nearly $3bn has been settled as a result of a process of repairing breaches of the Treaty of Waitangi) not only provide self-government but, as with the Ngati Hine in Northlands, run their own health and education services, as well as substantial businesses.

Desire to make rapid progress on the Provincial Growth Fund, even though the wiring isn’t yet in place. David Wilson, the President of the EDNZ, and a national leader in economic thinking rightly sees the PGF as a ‘giant leap forward”. It will certainly be a forcing mechanism for change. But the political imperative is to both spend the $3bn and see results within a 3 year political cycle. This a challenge in two respects first in developing good enough projects, and then in creating a robust enough decision making and assessment capability for approving these.  Speaking at the EDNZ Conference, Shane Jones the Minister in charge of the PGF appealed for speed and impact, saying he was more interested in ‘game changers’ than infrastructure projects which are already sitting on the stocks. But this is a tall order in such a short time frame.  The government machine is busy recruiting officials both to sit in Wellington and to be ‘embedded’ in the regions, a classic example of building capacity in monitoring and managing rather than initiating and implementing. And there is an independent assessment panel for assessing project applications. What there isn’t is a co-ordinated regional tier of decision making that can take ownership of this funding and spend it in accordance with locally developed inclusive growth strategies. Moreover, it feels as if there is a missing strategic brokering capacity between Wellington based government and local decision making.

Seizing the opportunity – making the PGF work and building an inclusive growth legacy

The outlines of an approach to making a success of PGF and developing a long term approach to place based inclusive growth, began to emerge from the dialogue at the EDNZ Conference.

There are 5 elements to this.

  1. EDNZ, be the inclusive growth you wish.  Adapting Ghandi’s famous maxim, the opportunity for EDNZ is to fill the void and be the vehicle for delivering the PGF.  In practice, it is EDNZ members that will be catalysing and enabling the development of effective projects that can help develop inclusive growth in the regions. The EDNZ conference was an exercise in both thinking through how to implement PGF on an inclusive growth basis and in developing a dialogue with Government about the rules for the game. It was striking that key Ministers responsible for PGF, along with official from the Treasury and the Department of Internal Affairs, and local government leaders were at the conference, talking to economic development practitioners about how they can work together. To assist this process Fletcher Tabuteau, Parliamentary Under Secretary for Regional Economic Development, announced a $1m fund to support professional development within EDNZ. Even more significantly, Shane Jones Minister for Regional Economic Development (and the architect of the PGF) hinted in his speech to the conference that he was open to the case being made by EDNZ for several $million of capacity funding to help build the critical mass, in policy, strategy and data capacity for implementing successful growth strategies in the regions. This was an open invitation for the EDNZ to go back with a proposition for capacity funding, not unlike the Mayoral Combined Authority Capacity Fund that has been established din the UK to help the new Metro Mayors discharge their new functions, especially in relation to investment strategy.

  2. Deliver PGF within a clear inclusive growth economic strategy.  The projects that are developed need to relate to an overarching theory of inclusive growth, and to locally developed economic strategies.  The outlines for this are evident in terms both of the desired outcomes, and the key cohorts that should be the target beneficiaries. This is the emerging theory which will need to be firmly rooted in empirical analysis of regional sectoral strengths, opportunities and competitive advantage. A key outcome of capacity funding should be a clearer framework within which to prioritise projects, so that there is economic rigour in the process.

  3. Government needs to establish better brokering capacity.  The NZ Government is in danger of both being a victim of its own departmental silos and not being able to effectively broker agreements and a modus operandi with the regions.  To rectify this there is a case for the Government establishing a small cross departmental team to both co-ordinate the Government’s engagement with PGF and inclusive growth and to provide a single point of contact for EDS and Regional Councils. The need for this will be even more pressing following the implementation of the Living Standards Framework though the “Wellbeing Budget”. One model for this is the Cities and Local Growth Unit within Whitehall in the UK, which sits between the Departments of Business, Enterprise and Innovation and the Ministry of Housing, Communities and Local government, and whose job it is to be a single force for brokering agreement between central government and cities.

  4. Stronger regional collaboration and decision making should be the institutional legacy of the PGF.  The PGF is a very large scale, but short term catalyst for regional economic rebalancing.  In the long term what will really drive this process is more embedded and empowered regional collaboration. The regional councils should be the building blocks for this, but these should ideally bring together economic development agency capacity, with democratic legitimacy and private sector partnership. They should also include the more prosperous urban areas, like Auckland and Wellington, that have been excluded from the PGF. The economic interrelationship and co-dependencies between cities and their wider regions should be sources of strength for regional economic collaboration.

  5. Unlocking the potential of anchor institutions and regional economic assets, particularly in the Maori economy and with IWI Funds.  Many of the long term grounds for optimism about inclusive growth lie with the emerging Maori economy. As Traci Houpapa, Chair of FOMA (Federation of Maori Authorities Inc) said at the EDNZ conference, the Maori economy has been under the radar until relatively recently, but has now been valued at $50bn. This is made up of Funds, extensive land, fishing and agricultural assets and a range of businesses. Inclusion is part of the DNA of Maori culture and practice, business activity has to both reflect and advance kaupapa (Maori values).  There is an enormous opportunity to build on this potential to normalise what is sometimes called business with purpose across a wider spectrum of economic activity, extending it to anchor institutions such as universities and hospitals and also to major private sector corporates.

The opportunity for a different model of growth in New Zealand is there to be seized.  There will be plenty of us around the world who will be willing it to succeed.

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