Might the drift to the north be resisted?

The regional population projections of Statistics New Zealand (SNZ) have only the Auckland and Waikato regions growing faster than the national average through to 2048. The other fourteen grow slower than average. The next three are Bay of Plenty, Canterbury and Northland, so excluding the South Island’s major city, the population growth centres are around Auckland. Under their most pessimistic scenario, SNZ expects twelve of the regions to have much the same or smaller population in 2048 compared with thirty years earlier.

These are projections and SNZ would readily acknowledge they may be wrong. Essentially they starkly exaggerate recent trends which show the population growth centre is in and around Auckland.

Why Auckland? People move there for climate, family and lifestyle, but underpinning these factors are jobs. The Auckland economy is booming relative to the rest of New Zealand. There are peculiarities which favour Auckland – it is our primary centre for international entry – but there is also a powerful process which accelerates its underlying growth. Economists call it ‘economies of agglomeration’, in which growth begets growth.

As a regional economy gets bigger it is able to offer more specialist firms and more specialist skills. This reduces costs of production in the region, attracts more business and reinforces the degree of specialisation, and the beneficial circular causation goes on.

There is a countervailing force of ‘economies of congestion’ where, for instance, traffic is so clogged that it adds to production costs and reduces the quality of life. That is why the entire national economy which is not based on resources does not end up in a single place, Because Auckland is on a narrow isthmus it especially suffers congestion which is why it aims to get more commuters onto public transport and why, in my view, the balance of the northern seaports should be moved towards Whangarei and Tauranga, releasing pressure in the inner city.

The economies of congestion spread the central growth node out into Auckland’s three surrounding regions. There is a sense that Hamilton is becoming a suburb of Auckland, with Tauranga, Whangarei and even Rotorua to join. (This is not unique to New Zealand. One of the biggest cities in the worl is Bosnywash – the megalopolis which runs from Boston through New York to Washington.)

Does this matter for the rest of the country? For economists there are two major reasons why it may. First, jobs are more mobile than population as a whole. So those in the working age group leave behind their elders and the slow-growing regions age. But second, not only does it become harder to provide those left with services but because there are economies of scale, the unit cost of providing those services rises and the population finds it harder to fund them on its retirement income.

Should we do anything about it? The first message is ‘don’t panic’. Sadly the New Zealand First Provincial Growth Fund looked like one, with its scattering of projects which temporarily boosted employment but contributed little towards sustainable economic activity.

One strategy is to extend the linkages from the growth node to the regions. Hamilton is joining Auckland because of the improved roading link, while, hopefully, the use of the rail link between the cities will intensify. The next step is, presumably, the link to Rotorua.

How far can such a linkage strategy go? The American experience is ‘overnight delivery’ which for goods is reliable railing or roading in about 12 hours. (Services below.) In principle that may mean we can link most of the North Island into the Auckland hub. We are some distance from doing this but in my judgement we should make better physical integration a priority for regional development even, perhaps, at the cost of increasing congestion in Auckland; we have to make tradeoffs.

The service and light goods story may be a little more promising insofar as the services can be delivered on line – so all regions need top class broadband – and the goods can be delivered by air, although many regions will not have frequent air services. Some high-income earners may live on line in the provinces for lifestyle reasons and commute occasionally into the metropolis.

Nelson has such a Wellington connection. It is important that both the central and local governments enhance this life style. Schools and healthcare are often critical in the decision of where people live but so can cultural, environmental and recreational facilities be.

(When I was working in the Far North, I was struck by the alacrity with which Maori popped up to their turangawaewae from Auckland – same thing for a poorer group of people.)

Regional resources will generate jobs. I have yet to meet a locality which does not think it presents a superb experience for visitors. Physical resources may be more complicated, since the intensification of productivity often reduces the total number of jobs in the region.

Overnight railing and trucking to Auckland across the Cook Strait is not practical. So the South Island may be tied into the growth hub by line and air but there are limitations for ordinary goods.

That explains why SNZ identifies Christchurch as a high growth region, presumably the centre for economies of agglomeration down South. That suggests enhancing linkages to it from the rest of the island.

The evidence from recent trends is that Wellington is a sort of piggy-in-the-middle, with Auckland sucking the activity from the centre of the North Island and the Strait blocking connection to the south. Wellington is, of course, the centre of the nation's government and will be heavily affected by the government's size and by trends in decentralization or centralization over time.

I am not a great fan for subsidizing job opportunities as a means of promoting a region. The decisions tend to be political, the production inefficient and the bandaid short term. I would be more persuaded by central government additionally supporting the elderly and disabled in the declining regions. There is also a, politically more tricky, role for central government to support the transition of regions as they age, ie rightsizing (A current challenge is Southland’s loss of the Bluff Smelter.)

Local leadership matters, but it needs to be realistic and thinking about the medium term rather than erratically seeking short-term solutions. Most of all it, and the rest of us, need to understand the long term in our spatial economy – of the boost from agglomeration, the drag from congestion and the importance of linkages.