On 25 June last year, I wrote to The Treasury requesting
copies of any material prepared by The Treasury this year on regional economic performance, particularly in New Zealand. I am particularly interested in any analysis or advice – whether supplied to the Minister or his office, or for use internally – on the economic performance of Auckland relative to the rest of the country (whether cyclically or structurally).
It wasn’t simply a request out of the blue, but was prompted by a speech given a few days previously by the Secretary to the Treasury, Gabs Makhlouf, The Importance of Being Auckland: Strengths, Challenges, and the Impact on New Zealand. In my post on that speech, I’d been quite critical of Makhlouf.
He’d begun his discussion this way
Why do I find this exciting? It’s because high levels of diversity provide dividends including through increases in innovation and productivity.
Auckland’s diversity is particularly critical for our international connections. There’s much more to international connections than trade. It’s the other international flows – flows of capital and people, and the accompanying flow of ideas – which are the key to reinventing trade, and which will lay the foundation for a more prosperous New Zealand in the long-run.
The high number of overseas-born Aucklanders can bring new skills, new ideas and a diversity of perspectives and experiences that help to make our businesses more innovative and productive. And perhaps most importantly, they often retain strong personal and cultural connections to other parts of the world, which opens up, and helps us to pursue, new business opportunities.
Auckland is truly New Zealand’s gateway to the world. It’s not just that there is a big number of companies here doing business internationally. It’s the port and airport linking the country to global markets; and tertiary institutions, researchers and innovators linking us to global knowledge.
To which my response was
Which might all sound fine, until one starts to look for the evidence. And there simply isn’t any. Perhaps 25 years ago it was a plausible hypothesis for how things might work out if only we adopted the sort of policies that have been pursued. But after 25 years surely the Secretary to the Treasury can’t get away with simply repeating the rhetoric, offering no evidence, confronting no contrary indicators, all simply with the caveat that in “the long run” things will be fine and prosperous. How many more generations does Makhouf think we should wait to see his preferred policies producing this “more prosperous New Zealand in the long run”?
If the Secretary to the Treasury was going to address the economic issues around Auckland, one might have hoped there would be at least passing reference to:
- New Zealand’s continuing relative economic decline, despite the rapid growth in our largest city,
- Auckland’s 15 year long relative decline (in GDP per capita), relative to the rest of New Zealand,
- The contrast between that experience, and the typical experience abroad in which big city GDP per capita has been rising relative to that in the rest of the respective countries,
- The failure of exports to increase as a share of GDP for 25 years,
- The fact that few or any major export industries I’m aware of our centred in Auckland (the exception is probably the subsidized export education sector) – and by “centred” I don’t mean where the corporate head office is, but where the centre of relevant economic activity is.
He might also have linked to the recent presentation by Jacques Poot (in a Treasury guest lecture), in which Poot was keen not to sound very optimistic about just how large those economic benefits of diversity really are, or to the work of Bart Frijns – an (immigrant) professor in Auckland (see last sentence of the extract above) – whose recent work suggests that on some measures, in some contexts, there may be net costs, not benefits at all.
Of course, one can’t say everything in a single speech, but when a credible case could be made that the Auckland-centred model is in serious trouble, it is bordering on the seriously unprofessional to not even allude to any of these sorts of points, even if only to explain why the Secretary interprets then differently than, say, I might.
So I was curious about what background analysis Treasury had been doing, or what advice it might have been providing to the Secretary or the Minister, in support of Makhlouf’s “cheerleading” for the Auckland story.
It turned out that there was none – or none recent anyway. But it took some considerable time and effort to extract even that information.
Their initial response was fairly prompt. It came on 12 July. Treasury told me that they were “currently updating their analysis and advice on regional economic performance, including Auckland performance” and expected to include this analysis and advice in future strategic documents, including the next Long-Term Fiscal Statement. Accordingly, they declined to release any material, citing as grounds under the Official Information Act the need to “maintain the current constitutional conventions protecting the confidentiality of advice tendered by ministers and officials”.
I lodged a complaint with the Ombudsman. Perhaps some “advice” did need to be kept confidential for the time being, but it was hard to believe that the underlying “analysis” could legitimately be withheld. And then I didn’t think much more about the matter – the wheels of the Ombudsman’s office often grind exceedingly slowly.
But last week, somewhat out of the blue, I got a letter from Treasury, to advise that
“following the release of our Long-Term Fiscal Statement…… I have revisited my decision and am now able to release the relevant material to you”.
Doing so eight months after the original request, and three months after the release of the LTFS itself, was no doubt just enough to avoid having the Ombudsman rule against them.
And what had all this been to protect? Well, almost nothing. It turned out that there was one internal discussion document (and a set of slides covering the same material) prepared for some discussion forum Treasury staff and management were participating in. There was no advice to the Minister, or to the Minister’s office, at all, so it is a little hard to see how they can have legitimately invoked, as grounds for withholding this material last year, constitutional conventions protecting the advice tendered by ministers and officials. Perhaps the fact that there was almost nothing was what they wanted to protect, but that isn’t good grounds under the Official Information Act.
For anyone interested here is the document they released (Treasury usually put OIA releases on their website, but this one doesn’t seem to be there yet).
The document seemed mainly focused on trying to get ahead of potential political pushes for further specific interventions in poorer regions and local authority areas in New Zealand, and there is some interesting material there. On Auckland, there was little beyond conventional pre-conceptions (these extracts are from various places in the document).
As agglomeration and clustering theory predicts, our more urban services-based regional economies (Auckland and Wellington and to a lesser extent Christchurch) are relatively more productive and generate higher incomes than our more resourve-based regional economies.
Our Treasury preference is usually to encourage or permit the continued concentration of economic activity in key centres (forces of agglomeration) where returns are expected to be greatest. Resources and activities should be allowed to flow betwen regions over time. Agglomeration suggests productivity benefits from large diverse cities and clusterng suggests some businesses benefit from being in smaller but specialised cities. This means higher economic performance but spatial differences.
This view was reinforced by the 2010 economic geopgraphy debate, which emphasised the importance of agglomeration (and Auckland especially), and implicitly downplayed the economic significance of “non-agglomerating” areas.
Not a mention of how the gap between Auckland levels of income and those of the rest of the country are small compared to those typically seen between largest cities and the rest of the country in other advanced countries. And not a mention of how those gaps have been closing rather than widening. In other words, little attempt to grapple with the specifics of the New Zealand experience at all.
We should expect better from our premier economic advisory agency, both in terms of the quality of the analysis and advice they are presenting, and in complying with both the letter and spirit of the Official Information Act.
And in the meantime, the grand Auckland Think Big experiment rolls on, cheered on by the Secretary to the Treasury. After 25 years we might reasonably expect our officials and ministers to be able to point to evidence of the success of the strategy. If it is there, they haven’t found it yet. More likely, it just isn’t there, and decades of bringing more and more non-New Zealanders to Auckland (even as New Zealanders, net, leave Auckland in modest numbers), looks like a strategy that has unbalanced the economy, and produced few real gains, whether for Aucklanders or the rest us.