Evolving regional and local economic development in New Zealand

Abstract

Regional and local economic development policy and practise has evolved over time both globally and in New Zealand specifically. Regional development support in this country, prior to 1984, focussed on conventional policies of regional investment and subsidies. The costly nature of support and the changing global context encouraged policy reformulation. After 1984, the pursuit of neo-liberal economic policies encouraged a focus on regional partnership formation and local level autonomy in alignment with thinking on ‘new regionalism’. More recently, increasing centralisation of economic policy, the narrowing of the local government mandate and new regional development thinking, which is grounded on market-based attraction of foreign investment, reveals the degree to which regional and local policy has evolved, and become more centralised and market focussed. At both the national and local levels, economic policies now tend to downplay social and community considerations in favour of market-led and business-focussed support.

Keywords

local economic development neo-liberalism New Zealand regional development

Introduction

The New Zealand experience and practise of regional and local economic development in the post-Second World War era vividly mirrors the transition which the country has made from a Keynesian state with strong socialist leanings to one grounded on neo-liberal ideology, the rationalisation of the role of the state and the now seemingly unquestioned reliance on market forces (Challies and Murray, 2008; Dalziel, 2012; Peet, 2012). In contrast with many other Organisation for Economic Cooperation and Development (OECD) countries, particularly in the European Union (EU), which underwent broadly similar transitions, yet often still continue to subscribe to principles of spatial redistribution, the same cannot be said about New Zealand (Rowe, 2005; Schöllman and Nischalke, 2005; Tselios et al., 2012). Whilst principles of subsidiarity and regional support, particularly for disadvantaged regions, are entrenched in the EU's structural funding mechanisms and in the UK where central state transfers to local governments are accepted as the norm, in New Zealand, local governments are largely self-funding and what limited regional support there is, is predominately market based and not grounded in redistributive principles (Pike et al., 2006; Reid, 2013; Rowe, 2005; Tselios et al., 2012). As a result of these and related shifts, Peet (2012: 151) has called New Zealand a country which has ‘pursued neo-liberalism with a vengeance’, and as this paper discusses, this is reflected in current practises and policy with respect to regional and local economic development, leaving a country, which is characterised by what can be regarded as ‘uneven regional development’ (Harvey, 2006: 72) and the phenomenon of ‘spatially uneven development and … lagging regions’ (Pallares-Barbera et al., 2012: 2).

What is particularly interesting to observe in the New Zealand case is the degree to which state policy, with respect to regional and local economic development, has evolved through a series of transitions, from an essentially light touch approach prior to 1970, through to direct state intervention in regional planning and development from 1972. Then, following the economic restructuring of the 1980s, a move to a more institutional approach was made, in line with OECD thinking on ‘new regionalism’, which attempted to build on regional comparative advantage and innovation and granted degrees of local economic autonomy to local governments (Markey, 2011) in the period from 1984 to 2008. In the current context, there is now a growing centralisation of control, steps to constrain and focus local government powers and a state-led approach to regional development based on principles of foreign direct investment (FDI). Recent moves in this regard resonate with World Bank (2009) arguments regarding themes of spatial agglomeration and economic specialisation. In terms of the increasing degree to which the central state is directing the economy in favour of pro-market development, it is interesting to note that in 2009 The Economist (in Reid, 2013) described New Zealand as the most centralised state in the OECD. This defined policy focus was confirmed by the OECD (2013).

This paper will first present a brief overview of the recent history of regional development practise in New Zealand, including an outline of the nature of the country's neo-liberal transition and the consequential effects on spatial development practise. Key within this regard are, first, the rationalisation and then the recent refocussing of regional support and, second, the changes in the expectation placed on, and the duties assigned to, local government. The theme of local economic development is considered in the second half of the paper. As will be discussed, it is also important to acknowledge the role played by non-state actors in local development practise, particularly where the role of the state is constrained.

Regional economic development – An overview: 1945–2014

Regional development: 1945–1984

After Second World War, following a slow start, the New Zealand government (NZG) pursued internationally accepted policies of economic redistribution based on support for industrial development in the peripheral regions of the country and those experiencing economic transition. In this regard, the Organization of National Development was established to oversee state intervention (Johnston, 1973). However, as Johnston (1973) argued, direct interventions were limited and there was reluctance nationally to support overt intervention, till a policy shift took place when a new Labour government assumed control in 1972. This led to the establishment of Regional Councils and overt support for regionally based industrial development, albeit with more of a focus on encouraging existing regional activity as opposed to proactively seeking the relocation of firms to peripheral regions (Welch, 1974). Despite the rather low key role played by direct regional development support in the conventional sense, as Dalziel (2012) argues, in addition to support for private sector industries, the state was itself a key role player in regional issues through the operation of state mining, forestry, farming and transport, subsidies paid to mining industries and import licenses granted to locationally based firms, all of which played a key role in sustaining lagging regions, often at a significant cost to the exchequer.

A key feature in the 1960s and 1970s was a programme known as ‘think big’ which sought to achieve a number of goals including regional development, economic self-sufficiency and assurance of power generation. Projects included the construction of metal refineries, such as the Tiwai aluminium smelter, chemical and petro-chemical works and a network of hydro-dams, such as those on the Clutha and Waitaki rivers (Abbott, 2007). Whether these endeavours and ‘traditional’ spatial interventions, actually achieved all the intended regional development goals in New Zealand, as elsewhere in the world, has been debated (Dalziel, 2012).

Neo-liberal reforms: 1984–2009

From the early 1980s, the NZG, spurred on by growing debt and its weakened international position, and in parallel with the neo-liberal shift elsewhere, sought to reduce its role and rationalise expenditure. Sales of assets, particularly in primary sector industries, the rationalisation of state services and cuts in regional subsidies impacted severely on the more peripheral regions of the country. Areas such as the West Coast and Southland experienced significant job losses and the loss of state services and state-run industries, leading to the expression of doubts over the future of such isolated and resource-dependent regions. In partial response, the state provided support for small business development and for community-based development; however, limited success has seen the whittling away of this support over time (Abbott, 2007; Challies and Murray, 2008; Peet, 2012; Scott and Pawson, 1999). The net result was a loss of 30% of manufacturing jobs, many of them in peripheral regions, and rationalisation of mining, forestry and state services, often to the detriment of employment and income streams in the more marginalised regions, such as the West Coast (Conradson and Pawson, 1997; Pawson and Scott, 1992). While the economy did gradually recover and employment levels rose (Abbott, 2007), regional disparities have remained.

In terms of regional and local development practise, the move from a command and control economy in which regional development interventions and industrial support had played an important role to a market-based one was profound (Abbott, 2007; Lattimore and Eaqub, 2011), with the ‘responsibility for regional futures often shifting from the level of central government to the level of the regions themselves’ (Conradson and Pawson, 2009: 78). By the 1990s, support for regional development had assumed a new guise, shifting from a welfarist and redistributive one, to one more in line with the government's neo-liberal thinking. Rather than focussing on regional weaknesses, the policy now sought to focus on local strengths, encouraging the formation of regional partnerships which could drive catalytic projects. This approach has parallels with thinking on ‘new regionalism’ and support for innovation and has been associated with the OECD policy of ‘Local Economic and Employment and Development’ (Schöllman and Nischalke, 2005).

The new approach sought to make available central state funds to regionally based public–private partnerships of key stakeholders who were tasked to identify catalytic, regionally based projects which the state would then allocate grant funding to (Rowe, 2005). The initiative was known as the Regional Partnership Programme and was spatially linked to New Zealand's 16 administrative regions. The political as opposed to economic definition and character of many of the regions and the frequent absence of unity between diverse stakeholders at this level meant that only a handful of projects were ever funded, most with a tourism or primary industry focus. Schöllman and Nischalke (2005) and Rowe (2005) have identified the limited success achieved by the programme as a direct result of these fundamental weaknesses. Difficulties experienced in formulating cohesive project proposals, particularly in the larger, more diverse regions prevented the attainment of real progress. Parallel efforts to promote regional development and the knowledge economy more specifically included support for the Clusters Regional Development Fund and the Regional Polytechnics Development Fund. Lacklustre outcomes and the shift to a National party (conservative) government in 2008 led to the phasing out of the scheme and the downgrading of regional development support. From 2008 to 2013, the national budget allocation for this policy was reduced from just under NZ$ 4 million p.a. to NZ$ 200,000 allocated to support individual business ventures with little reference paid to regional stakeholders (NZ Treasury, 2013). This has led to a scenario in which state support for regional and local level development had fallen, and a situation in which local governments often lack the resources or political will to fill the gap and engage in local level economic development particularly in economically struggling areas. As a result, civil society is often obliged to play a greater role in terms of supporting self-help (Nel, 2012; Nel and Stevenson, 2014; North, 2002).

Current regional development policy

From 2008 to 2013, it appeared that regional development thinking was off the government agenda and that the national and regional economies would be left to contend with market forces independent of spatially based state support and guidance. Since 2013, however, this scenario has begun to shift and it is now apparent that a new approach to regional development is in the making, which is no longer linked to ‘new regionalism’ but which is rather anchored in central state support of the market, and foreign investment attraction in particular. This new approach is clearly associated with the government's Business Growth Agenda (NZG, 2014a) which seeks to promote jobs, exports, innovation and infrastructure. The approach which is termed the ‘Regional Investment Attraction Programme’ seeks to ‘encourage more international firms to invest in New Zealand's regional economies to increase growth and jobs’ and has the clear goal of raising exports by some 33% (NZG, 2014b). Providing access to market information and regional data and the offering of state facilitation of investment decision-making to enable investing firms to select the most appropriate spatial locations for their investment is the emerging modus operandi. This approach, which is based on inward investment, market information, exports and regional specialisation, has clear links with World Bank (2009) thinking and the market-based philosophy of the current government.

Key within the government's new thinking is the provision of reliable and accurate data to assist investment decisions, which has led to the production of annual ‘Regional Economic Activity Reports’ (NZG, 2013, 2014c) which summarise regional economic trends. The parallel Business Growth Agenda and information supplied by New Zealand Trade and Enterprise (NZTE, 2014) identifies the lead sectors in each region and, by implication, the investment opportunities for foreign investors. The Agenda is grounded on the principle that the government's goal is ‘to build a more productive and competitive economy by building business confidence, and addressing the issues which matter to firms’ (NZG, 2014a: i). Assistance to envisaged foreign investors will be provided by the government agency, NZTE and will include the supply of information regarding investments and regulations, facilitation of site visits and site selection, and advice on other forms of government assistance, local suppliers and local contacts (NZTE, 2014). As a future step, the government aims to support local Economic Development Agencies (EDAs) to identify and encourage investment opportunities (NZG, 2014b). Other key forms of state support which have regional implications identified in the government reports include the post-earthquake Christchurch rebuild programme and regionally based support for irrigation development and the oil and gas industry (NZG, 2014a).

What is striking in the emerging documentation is the focus on foreign as opposed to local investment and the effective absence of local or regional engagement, to date, in what seems to be a central state-led process. Issues of regional equity and redistribution which underlie policy in the EU are largely absent in the new, New Zealand documents which clearly identify the government's policy agenda, which, as stated above, is focussed on what ‘matters to firms’. The Regional Economic Activity Reports are based on economic and employment data and not social measures of well-being and development. While regional development is clearly back on the agenda, it is clearly in a new guise which pursues development objectives which are more neo-liberal in their focus than what is the norm in other countries, and which accords with Peet's (2012) critique of the extreme form of neo-liberalism which the country has chosen to adopt.

The stages described above detail the evolving process of regional development in the country which has seen a shift in policy from one driven by state-funded redistributive and catalytic anchor projects to one which briefly attempted to support community projects, before shifting to encouraging local private–public partnerships around catalytic projects and the knowledge economy. In the latest phase, the focus has shifted from the public to the private sector and to a large degree to that of encouraging foreign investors.

Local economic development

The local government context

Similar to the experience of regional development in New Zealand, local government has itself undergone a process of transition from a situation during most of the 20th century when its powers were tightly defined by statue, to a position in 2002 when, in terms of the Local Government Act of that year, it was assigned powers of general competence in common with most countries in the OECD (Reid, 2013). Key in this regard was the identification of the ‘four well-beings’ which local governments were responsible to promote in their communities, the most important, in the context of this paper, being the promotion of ‘social and economic development’ (NZG, 2002). While this gave considerable autonomy to local government to potentially pursue principles of local development and ‘new regionalism’, the Act was amended in 2012 (NZG, 2012a), as is discussed below, to potentially narrow the focus of powers and enhance the centralisation tendencies alluded to above as part of the broader pursuit of pro-market development by the central state.

Whilst there has been a long tradition of local government autonomy, as indicated above, local government is largely self-funding in its regular operations, which naturally impacts on its capacity to address issues outside of its core services focus, particularly in the economically weaker areas (Reid, 2013). Core state services such as health care and education are the preserve of the central state, which narrows the mandate and hence the financial responsibilities of local government. As there are numerous calls made on limited finances, councils therefore often find it challenging to prioritise economic development in the struggling areas in particular. In practise, local government economic support tends to focus on issues such as marketing, investment attraction general infrastructure provision and acting as a conduit for central government support for small business development in the larger centres. Community-based economic development seldom features in local actions. Despite this, local governments do try and play a role in economic matters, with several of the larger local authorities operating or supporting local and/or regional EDAs. To a degree, this reflects the encouragement given to local authorities in the original 2002 Local Government Act which mandated local governments to be lead agents in ‘social and economic development’.

In 2012, as some might argue, in a move designed to curtail and focus local government activity, the Local Government Act was amended and the provision that council's should address social and economic development was replaced with a new argument that the core focus of their activities should be on infrastructure and service provision. Whilst this has not yet led to significant changes on the ground, the move is of concern to local governments which fear the erosion of their functions by the central state which has brought in measures which have narrowed the mandate of local government and enhanced the powers of the Minister to intervene in the affairs of local governments. Government argued that these steps were needed as local governments do not operate efficiently, nor are they focussing on their unique service provision role, in addition the four well-beings were seen as ‘diverting; local government in areas of central government and private sector responsibility’ (NZG, 2012b: 1). The amendments to the Act replace the above-mentioned well-being requirements detailed in the ‘purpose statement’ with the new and significantly narrowed down responsibility namely that they ‘meet the current and future needs of communities for good quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost-effective for households and businesses’ (NZG, 2012a, 2012b). These market-based reforms did not go unopposed, Local Government New Zealand (2012) argued that there was ‘limited evidence to inform the development of these proposals’, or to arrive at the conclusion that councils had not focussed on core services. It could be speculated that the amendments to the Act reflect both government's desire to pursue a more market-led approach in which local government power is further curtailed and that central government have given themselves the ability to intervene, ostensibly in favour of market interests or public good.

Local government economic development

Most local governments, directly or indirectly, have a degree of engagement in the economic and social development of the communities which they administer. Social interventions tend to focus on issues such as housing and recreation, with welfare support, and previously community economic development having been supported by the central state. Local government economic support varies significantly from low key interventions such as information supply and the provision of limited business advice, to active support of EDAs and even regional development agencies (RDAs) as is outlined below.

The country's larger cities all have EDAs which are either ‘in-house’ operations within councils or they are set up as semi-autonomous entities. The nature of their endeavours is somewhat uniform with a focus on small business development, investment attraction and marketing; but surprisingly, in contrast with other countries, community economic development is not a core focus. Limited funds and capacity restricts the role and nature of the possible support and interventions which they can offer. Some examples serve to illustrate the current foci of activity.

The country's largest city, Auckland has developed an Economic Development Strategy which focuses on issues of innovation, exports, skills development and providing a business friendly environment (Auckland City, 2014). Economic development is undertaken on behalf of council by a semi-independent EDA, ‘Auckland Tourism, Events and Economic Development Limited’ which focuses on the promotion of events, the education sector, innovation, business attraction and investment (ATEEDL, 2014). In the capital city, Wellington, the equivalent EDA ‘Grow Wellington’ has a focus on business growth, investment and priority sectors which include ICT, innovation, screen and digital, high value manufacturing and the primary sector. The vision of the organisation is that of a ‘region led by innovation, driven by technology and focussed on exports’ (www.growwellington.co.nz/page/home.aspx). In Christchurch, the earthquake rebuilding programme has become a major focus of local and central government attention and support. The local EDA, the Canterbury Development Corporation has identified regional economic growth, the earthquake rebuild, innovation and business growth as its core foci (Canterbury Development Corporation, 2014). A final example of the small but rapidly growing city of Tauranga illustrates an interesting variant on local development. While the city pursues its own economic development strategies, these are closely aligned with a sub-regional strategy known as ‘Smart Growth’ which has an investment, business and innovation focus. An innovative city-based programme is that known as ‘City Partnerships’ whereby local firms can apply to have a contact person in the council to personally assist them with planning advice and support (www.tauranga.govt.nz).

Outside of the larger cities, smaller local authorities often do not have capacity of any significance in the area of economic development and many of the smaller centres often only engage in limited forms of local authority economic support, such as the encouragement of tourism-based activities and occasional small business support. A striking feature of the strategies pursued by effectively all of the local authorities and their EDAs is the overwhelming focus on pro-market support with there being minimal consideration of broader social and community-based economic development. With the major exception of efforts in Auckland to develop the economically weaker southern parts of the city and Christchurch rebuild, there is minimal evidence of spatially targeted support within local authority areas.

Regional development agencies

A parallel process of spatially based economic development which takes place at the local government level, as opposed to that of the central state, is the role played by RDAs in the country. These agencies, in the limited number of instances where they exist, are largely funded by a collective of the local governments in the regions they operate in and are tasked to fulfil the economic mandate and objectives of their funders. While there have been a number of RDAs operating in the country's 16 regions over recent years, not all regions have established them and those that do exist vary in focus and function. The most enduring are Venture Southland in the Southland region and Venture Taranaki in the Taranaki region based on the city of New Plymouth. Whilst the latter has encouraged private investment, especially in the growing oil and gas sector and also seeks to promote investment and tourism (www.taranaki.info), the latter has adopted a more holistic vision and is one of only a few RDAs to include a focus on community-based development. Venture Southland, in addition to promoting the development of lead sectors, has also sought to diversify the rural economy through exploring new agricultural options, to improve regional broadband capacity and to support community-based projects in areas ranging from tourism projects to providing community facilities such as museums and educational support (Venture Southland, 2014). One exceptional RDA is that of Priority One which, rather uniquely, is a private sector-funded agency operating from the port city of Tauranga. This agency, which is funded by and responsible to local business has actively sought investment, promoted the region and undertaken research into local assets and development opportunities. Priority One also offers business support, skills development and partnership formation and works closely with the private and public sectors in the sub-region (Priority One, 2014).

The role played by local actors

A noteworthy feature of local development in the New Zealand is that in the near-absence of significant state support at the community level, and given the limited capacity of local government to intervene, in smaller communities, non-state actors often play a key role in community-based economic development. While non-governmental organisations and community-based organisations such as churches do play a role in providing welfare-related support, over and above the role played by the state, when it comes to supporting economic activity, as has been shown elsewhere, it is often private business individuals, so-called benevolent entrepreneurs who play an important role in small towns (Nel and Stevenson, 2014). These individuals variously support other existing and potentially new businesses, encouraging investors and are active in town promotion and even in supporting endeavours to retain or expand community facilities, such as health care centres, when the state reduces its support. While not having the capacity to herald a new era of development, such actors can and do help to support local economic activity and employment in the more marginal areas.

Discussion and conclusion

In parallel with international experience, regional and local economic development policy and practise in New Zealand has clearly experienced significant oscillations in its focus and the structure of associated programmes and interventions. While the country, in parallel with other OECD countries, experienced a major policy shift from Keynesian style policies and direct regional subsidies and support prior to the 1980s to a more market-focussed, economically rational approach anchored on principles of innovation, partnership formation and trade and investment, it appears that recent policy is suggesting, once again, a case of New Zealand exceptionalism in its actions and policy choice (Roberts, 2011). As Peet (2012) argues, the NZG has pursued neo-liberalism far more rigorously than most countries, and in the case of regional and local development, this appears to once again be the case in terms of recent pronouncements. The apparent curbing of the local government mandate, the centralisation of regional development thinking and support and the apparent buy-in which local governments and their EDAs are providing to pro-market strategies, both parallels and differs from OECD experience where principles of subsidiarity, redistribution based on social grounds and community economic development remain common place. The erosion of local autonomy differs from the at least overt commitment expressed to decentralisation and local decision making found in many countries and as is suggested in the UK's Localism Act (Pike et al., 2006; Tselios et al., 2012; UK Government, 2011).

While regional development seems to have underperformed historically in the country in terms of the costs to the exchequer and the lacklustre performance of the Regional Partnerships Programme, it will be interesting to see whether New Zealand's new centrally driven programme, anchored on FDI and the seemingly minimal provision of incentives can lure in foreign investors, many of whom may have access to better located production sites and markets and frequent access to a range of incentive programmes elsewhere. To date, the seeming absence of inclusion of local firms in the new programme seems rather surprising.

In terms of local economic development, with the exception of Venture Southland, most local authorities and their EDAs seem to have adopted a narrow conceptualisation of economic development with a focus on innovation, lead sectors, business attraction and investment. Support for smaller and emerging business seems to have been somewhat downplayed as have community-based considerations. Given the effectively self-funded nature of local government, there is a real risk that regional and intra-urban socio-economic disparities will increase over time. While the government may be correct that, at the regional level, disparities between Auckland and the rest of the country are closing (NZG, 2014c), it is likely that aggregated figures are masking inner-urban and rural poverty in areas now beyond the reach of market-based regional and local economic development. In this scenario, local actors, as has been argued elsewhere (Nel and Stevenson, 2014), do make a limited difference in these places. This is clearly an inadequate response and it raises long term questions about the future of ‘lagging regions’ and their residents in an economic environment which is becoming increasingly centralised.

Footnotes

Funding

This research was supported through a University of Otago research grant.

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