By Jason Krupp*
Sitting in one of New Zealand’s urban centres, it is tempting to look across the various data points and conclude that all is well with the country. Yes, dairy and log prices have pared back substantially over recent months, but almost every other economic indicator is improving, holding its own, or lingering below warning levels, as in the case of inflation.
Yet this is a temptation that needs to be resisted. Dig below the headline numbers, and you will quickly see a two-speed economy: one part urban and thriving, the other rural and stagnant.
The explanation for this divergence can be attributed to the forces of globalisation, agglomeration and mechanisation.
The returns to skills in large centres have increased. Highly skilled workers in the cities, mainly employed in the services sector, have done well. But rural New Zealand has been hit hard. Industries such as timber milling, manufacturing and meat processing – cornerstone employers in many countryside communities – are no longer economically viable, and have either moved elsewhere, or shut down. Drops in transport costs combined with returns to scale in processing have concentrated that kind of work in a smaller number of centres.
As these jobs have dried up, economically active people have moved to the cities, turning an existing cycle of slow rural decline into a vicious circle, one that concentrates ageing in the provinces.
But can we do anything about it?
The answer is tricky, but part of the solution could be to increase the contribution of mining to the economy.
Mining is, by definition, more resistant to globalisation since companies have to come to the ore. And New Zealand has a rich mineral endowment, with significant deposits of gold and silver, coal, industrial metals, and non-metallic minerals onshore, while offshore there is huge potential to expand the scale of oil and gas extraction.
Furthermore, the strength of New Zealand’s institutional framework, ranked among the best in the world, suggests the country is well-placed to deal with, or at least significantly mitigate, the negative environmental and macroeconomic side-effects that come with high levels of mineral extraction.
Readers may ask: “if it is such a good idea, why hasn’t it been done yet?”
That is a question that will answered on Monday, 1 December, when the Initiative launches Poverty of Wealth: Why minerals need to be part of the rural economy, which outlines the regulatory impediments that have prevented rural New Zealanders from tapping the wealth underfoot.
The report will be available for free download on our website. We look forward to discussing our findings with you.
*Jason Krupp is a research fellow at the New Zealand Initiative.