Benje Patterson on attracting people, economic development as a long game, the importance of economic gardening, the working world is changing and making economic development inclusive

Benje Patterson on attracting people, economic development as a long game, the importance of economic gardening, the working world is changing and making economic development inclusive

This week’s Top 5 comes from economist Benje Patterson.

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Shane Jones’ $3 billion Provincial Growth Fund has shone a light on regional economic development. But there are still a lot of misconceptions about what regional economic development is and what projects hope to achieve. This top 5 post explores selected elements of what regional economic development practitioners think about.

1. Making a place great to live, work, and do business.

Economic development is not a tool for cherry picking winners, rather it is about creating a space for entrepreneurialism to flourish. A core focus of many regional economic development strategies is supporting initiatives that make a place great to live, work and do business. If you get the basics right and tell the story well, then residents will want to stay and outsiders will want to move to your area. People are the building blocks of an economy, irrespective of whether they contribute productively as workers in existing enterprises or utilise their talents and capital to invest in businesses that employee others.

Statistics New Zealand released its June 2019 year subnational population estimates last week. The data shows which parts of New Zealand are most successfully attracting and retaining people.

“While both the North and South islands had overall growth similar to the national average of 1.6%, there were a range of growth rates across the territorial authority areas within each island. For example, in the South Island, the Selwyn district had a 5.3% increase with Buller district declining by 0.3% in the June year. In the North Island, Waikato district had a 2.8% increase, while Waitomo district had an 0.9% decrease in population over the same period.”

2. Economic Development is a long game.

Quick wins in economic development are hard to find, and regions need to play the long game. Shane Jones and the Provincial Growth Fund (PGF) are learning things the hard way. Most of the PGF’s $3 billion has already been earmarked for projects, but very little of the money has actually been distributed and relatively few jobs have been created.

The reality is that there are long lag times between conceptualising an idea, planning for implementation and getting things operational. It’s harder to spend $3 billion and create jobs in a hurry than Jones had naively thought.

Some recent statistics:

“The latest job figures have been released, showing 1854 were employed in Provincial Growth Fund project.

Of those, 616 were full-time, 637 were part-time and 601 had an "unknown" status.

The figures showed 520 jobs are in the tourism sector, 249 in roading, 142 in rail and 246 of the jobs are for those working on feasibility studies.

It was estimated that 10,000 jobs would be created overall from the fund.”

3. Economic gardening is just as important as starting new enterprise.

Business attraction is a key focus of regional economic development. The rationale is that new businesses create jobs, which in turn support wellbeing in local communities. But I am often left wondering whether this focus makes sense in the real world.

I decided to test whether new or existing businesses are the engine for jobs growth in regional New Zealand.

The answer to my investigation is that both economic development roles matter. New businesses generate a steady stream of jobs across all parts of the country, but these gains can be quickly eroded when existing businesses backpedal.

“Although startups are indeed an important part of the jobs growth engine and must be supported, excessive swings in the fortunes of existing business are the more detrimental factor during bad times.

Some natural pruning is warranted to weed out business models that are out-of-sync with longer-term trends in supply and demand, but there are some businesses that fail because they have insufficient resilience to weather short-term storms.

This need to build up resilience provides relevancy to the work that economic development practitioners do with existing enterprises to help them become more cost efficient, productive, competitive, and sustainably financed.”

4. The working world and what people choose to do is changing.

Understanding how megatrends influence a region is a key consideration for economic development practitioners. For example, an increasing number of remote workers is a megatrend that is beginning to shape the working environment in many regions.

These people could choose to live anywhere in New Zealand (or even the world) and still earn their income remotely, but have chosen to live in a particular place for family or lifestyle reasons.

Economic development practitioners want to develop their understanding of these remote workers. Attracting such people to your area can bring higher incomes and diversification, while tapping into the skills, expertise and capital of remote workers could potentially lift productivity and lead to further job creation.

Although not the quite the same thing as remote work, Statistics New Zealand is expanding its ways of understanding what proportion of people have flexible working arrangements. The findings make for interesting reading:

“The industries with the highest proportion of ‘flexitime’ arrangements were rental, hiring, and real estate services; and professional, scientific, and technical services, where over 70% of employees had flexible work hours.

Those with flexible hours reported higher levels of satisfaction with both their job and their work-life balance than those without.

16 percent of employees had an arrangement with their employer allowing them to work from home but continue to be paid.

22 percent of parents to a dependent child had an arrangement with their employer to be paid for work done at home, compared with 14% of non-parents.”

5. Economic development needs to be inclusive.

Economic development is not just about dollars and cents, people and the environment matter too. Sustainable development is the sweet spot that balances all three.

Economic development practitioners are learning that there can be synergies between what is good for people and the environment, as well as what is good for business. Happy people are more productive, while happy and healthy societies operate more cohesively and efficiently.

According to the World Economic Forum:

There is no inherent trade-off between promoting social inclusion and economic growth and competitiveness. It is possible to be pro-equity and pro-growth at the same time; not only is it impossible to improve everyone’s living standards without growing the economic pie, but policies that improve living standards and influence the way in which the pie is shared can also bolster growth. Several of the strongest performers in the Forum’s Global Competitiveness Index are good at ensuring that growth proceeds in a way that includes the many rather than the few.

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Selwyn DC is flourishing simply because it is much easier to build, run a business, and generally to live there. It does this primarily by eating Christchurch City's lunch. Poster child: IZone....

Amazing how issues with a local Council can be resolved just by crossing a border to the next, more business-friendly one....

The same reason can be attributed to the rapid population and economic growths that Hamilton is currently undergoing.

Based solely on a rapidly increasing population which is absolutely and utterly unsustainable

Opinion based on what evidence? Selwyn and Hamilton are quite capable of sustaining a lot of growth - lots of cheap land available and oodles of easily accessible water. Sunny low rainfall climate and stable flat land make Selwyn in particular ripe for growth - developing land and roads etc there is extremely cheap.

Good stuff. What the last decade's failed neoliberal experiment called 'Auckland' can teach the rest of NZ is an attempt to rush on economic progress is more likely to backfire and deliver poor outcomes in the longer run. While we're on the topic of progress, we also learnt to prioritise long-term "development" over short-term "stimuli" for more sustainable socioeconomic outcomes.

FYI Auckland metro region had the lowest economic output per capita premium (12%) over the rest of the country in 2016 among OECD countries. The same measure for Northern and Central European countries came at 25-40% while Netherlands came in at the top of the table among advanced economies at an enviable 75%.

I think you'll find that the only economic driver for Auckland was so called property investment from overseas money from China which is now gone (Since 2017). That's why Auckland's economic out is now so poor. And it's a good thing that that dodgy money tap has been turned off, since it was killing off our real business economies by making the cost of living far too expensive for them to thrive. We actually have quite a good tech industry here but it's been eroded away by the cost of living. Same thing has happened in other global cities that were hooked on lots of Chinese money.
Here's an example from Canada where the salaries there are low and similar to ours. This article highlights the issue: Better Dwelling article: Vancouver’s Tech Scene Shows Just How F**ked Up The City’s Real Estate Is.

Interesting stuff. Ireland is in a similar boat; all these locations are simply temporary alternatives for US-owned companies to house thousands of tech workers due to more attractive tax and immigration laws at these centres.

Also begs the question how big a mass exodus of high-quality tech workers (and drop in influx from other countries) would Vancouver, Dublin and Toronto face simply when the US finally sorts out its H1B mess.

Yes agreed. And that's the thing NZ and even Auckland has a huge amount to off in regards to tech development, though it's increasingly difficult to hold on to highly skilled staff moving off to Australia, US and more over Asia in search of better affordability (Not just salaries).
So it's not surprising that Wellington is actually doing much better than Auckland due to it having a real tech economies and businesses. One of the biggest drivers there is not surprising our Film industry which lets face it has been responsible for putting little NZ on the map.

Auckland is "Neoliberal"? LOL. Bollocks.

A major part of the problem with Auckland has been the encroachment of government regulation on private property rights. Auckland would be much more affordable if the City councils had allowed more construction through less red tape, fewer compliance costs, and smarter regulation.

What about the role of the existing skill sets and how they allow or restrict development options?

For example, if your area has a lot of engineering firms, then more profitable engineering firms can poach the best people from the less profitable ones, who in turn can poach people from less skilled jobs. The secret is profitability and access to skilled employees.

Indeed network effects dominate a lot of economics. It's why you see precincts and districts with many similar businesses all over the world - to gain access to greater resources (be they customers that come to the area for that service, or communities of people with the special skills required). It's also why it is nearly impossible for NZ to compete in most tech and manufacturing - too isolated from the talent pools. The Bay area in US has unbelievably high salaries and costs - and yet network effects and access to the talent pool mean it's still worth it to the companies doing business there.

For the weekend:
A contemporary view on Californian agriculture and globalisation.
And Trump

Moore Victor Hanson

This book is, without question, one of the finest works about the decline of the family farm, specifically the harsh realities of California agriculture during the 1980s (written from the perspective of the late 1990s). The profiles of the last holdout "yeoman" are compelling and full blooded. But what's even more interesting is how, through the small details and the individual anecdotes, Hanson is able to diagnose the larger trends and social consequences of this decline.

Look at the sorry state of Wellington. People have been moving further out and the slow consent process in Wellington has done a lot of damage. It's not helped by having Peter Jackson behave like a nimby and stop housing being built.

The saving grace for Wellington so far has been councils independent of WCC running the affairs in its fringe towns and cities. The majority of new development in the region is happening in Porirua and the valley due to relatively better governance.
Also due to the geography of the region, even far-flung areas are mostly serviced by the two major rail lines, ensuring decent transport connectivity to the CBD.

The difference in housing costs is a major driver. The CBD has a lot of momentum for business but in the long term businesses are going to have to move further out too. All the left over office towers from the 80s have been mostly converted to apartments and there is only a small amount of new office space being created. It won't be John Key's "dying city" but it won't grow the same way.


Population Growth is not a sign of economic progress.
Look at Auckland. Far bigger, harder to live in, and vast zombie suburbs with significant social problems.
The objective should be an economy that increases New Zealanders incomes and thus choices and access to good stuff. (like health services). Population growth has bought the opposite.

The more employers in the regions the better for everyone. Social and professional values decline amid the frustrations, pressures, costs, impersonalisation and consumerism of the larger cities. Local relationships, local amenities and local produce, all build life satisfaction. One or two decent employers can transform a town and its lives, while technology enables distant working for those requiring it - these dynamics together creating hubs of local social value. Life's too short to spend it on a so-called motorway.

I like what you've said here!

No point holding the USA up as an example of where we should aspire to be. I have spent time over there and while it is admirable that even the most delinquent American can seemingly make money out of thin air (their political class particularly adept ) the true nature of that economy is one of colonisation and exploitation, physically, financially or nowdays digitally. We don't want to be like that and I suspect nor would the USA allow us to decolonise ourself from them. What we have to do is use the PGF to address our longstanding inability to transition away from a low value commodity economy. No easy feat given the influence the very producers of said commodities have over the policy settings of all successive governments which treat the primary sector like an indulged child ahead of other sectors and regions that could deliver far greater dividends if treated equally well. Me? I'd back revitalisation of the natural gas network in the North Island and set about tapping the gas reserves available to the South Island and reticulate it across the land. We're doing it with fibre broadband so why not with gas, its a useful utility too.