Were I an Aucklander I would be keen to free up the Waitemata waterfront by moving most of the Port of Auckland as well as the Devonport Naval Base. The shift may well be commercially costly, but everyone living in Wellington celebrates its superior connection of the city with its harbour.
I have no strong view about to where the facilities should be relocated. However, I shall use the current enthusiasm, or not, for moving the Auckland port facilities to Marsden Point near Whangarei to illustrate the vital economic principle of the importance of ‘connectivity’. I will conclude that there would be considerable benefits from enhancing the connectivity of Auckland with its north which may result in some or all port facilities moving to Marsden Point. But the immediate objective should be improved connectivity.
Economics does not analyse very well the consequences of connectivity between locations. I did not realise this, until I studied international globalisation (see my Globalisation and the Wealth of Nations). There I focused on the ‘costs of distance’ of which connectivity is a large part. Here I focus on physical connectivity, especially for goods, although information connectivity (the broadband roll out is an example) and people connectivity is also important.
The reason economics does not deal with connectivity well is because it is a transaction cost which it finds difficult to involve in its overall framework. Tariffs are transaction costs which the analysis handles fairly well. But other costs tend to be ignored; I was struck how little attention was given to the WTO multilateral deal negotiated in Bali in 2013.
The Trade Facilitation Agreement, settled in Bali, aims to reduce red-tape and streamline customs. It is easy to overlook these costs. The Peterson Institute for International Economics estimates that if the customs measures of the agreement are properly implemented, they could create annually $US1 trillion worth of global economic activity (world GDP is about $US90 trillion), add 21 million new jobs and lower the cost of doing international trade by 10–15 percent.
Such a gain illustrates how transaction costs cannot be ignored. Someone exporting fresh food knows customs delay can ruin their product. Even the threat of customs delay can disrupt smooth supply chains and just-in-time production. Britain will painfully learn this lesson if it brexits; ever since the 1992 Maastricht Treaty the European Union has been bringing down the transaction costs at the border.
But if economics does not handle transaction costs well, that does not mean connectivity is unimportant. I was struck by a study which found that the crucial difference for just-in-time supply in the US was (reliable) overnight trucking. Think what that means in the North Island.
In response to powerful economies of agglomeration critical to globalisation, we have made a major effort promoting Auckland development. If that does not work, New Zealand will not have any urban centre of international significance. There has been some grumbling from the rest of New Zealand, because they feel they have been neglected.
But what do we mean by ‘Auckland’? While the focus has been the isthmus-centred region governed by the Auckland Council, the effective region is, if the US evidence is relevant, anywhere which can provide reliable overnight trucking. That means the urban centres of Whangarei, Hamilton, Rotorua and Tauranga are a part of its economy. We have slowly been building the road and rail networks which integrate the peripheral cities into the hub. When the connectivity is sufficiently upgraded, it is even possible to envisage regular overnight trucking from Wellington.
Cook Strait is a barrier which I doubt can be overcome (without a bridge). Before the South Island starts grumbling about being left out, a parallel strategy would be to develop the island’s connectedness with Christchurch as its central hub. It wont be as strong as Auckland, but it appears to be the alternative to a primarily rural South Island. (I used to think before the Kaikoura earthquakes that Wellington had the potential advantage of overnight trucking to both Auckland and Christchurch.)
The analysis has focused on the road network. Rail has a role (as has air for small, highly valuable products – including people with health needs) and it should be strengthened too. But railing goods frequently involves triple handling – truck to railyard, train, truck from railyard.
Roading policy should be focusing on trucking rather than passenger transport. One of the reasons I support public passenger transport is to free up the roads for trucks; you cannot put construction steel on a bus.
A conventional cost-benefit analysis, like those being done for shifting the Port of Auckland, underestimates the gains from improved connectivity, for at least three reasons. First, the gains from economies of scale and agglomeration seem stronger than the analysis can allow. Second, it is difficult to estimate the gains from improved scheduling and reliability. Third, we cannot guess the innovation lower costs of distance stimulates. (Almost by definition, it is difficult to give examples; how about someone who seeks to barge goods from Marsden to the Waitemata?)
The government has established an Infrastructure Commission with a huge agenda. I cannot think of a time in New Zealand’s commercial history when we were not under-supplied with necessary infrastructure. I have no idea how the commission is going to prioritise the project list – it would be unwise to rely entirely on cost benefit analysis. I would hope they give some priority to increasing the nation’s connectedness.
That would include better physical connections to Auckland’s north. Not just to the benefit of Whangarei and Marsden Port but to unlock the potential of the Northland region. This is a medium term objective without necessarily promoting the rearrangement of the port facilities.
But even if there is not a full transfer, it may be that it will prove sensible to unload imported cars at Marsden rather than Waitemata, while I would not be surprised if the navy thought it worthwhile to move there too, with its staff increasingly living to Auckland’s north. Incremental changes, but if I was an Aucklander, I’d feel better off.