Perhaps not many other long-term residents of Wellington share my taste, but I’ve always been fond of Auckland. Partly that might just be good memories from five years there in my youth, but there is also the great physical location, a better (and certainly warmer) climate, deciduous trees, flourishing citrus trees in so many suburban gardens, and so on. We’ve just had a family holiday there, and I was reminded again of what I liked about our largest city. By contrast, I’ve always regarded Wellington as the public’s revenge on the public service.
Of course, as holidaymakers we didn’t have to grapple with the horror of the housing market, and between reduced school holiday traffic, the new Waterview tunnel, and largely avoiding the rush hour, not even the traffic was too problematic for us. Coming from cramped Wellington, we were staying just off a not-overly-busy road that seemed wide enough that a whole new subdivision could have been constructed down the middle of the road. We were mostly being tourists, but a curious and analytical 14 year old prompted discussions around the absurdities of housing supply restrictions – explaining the oddities of the isolated high rise apartment blocks on Jervois Road, or Stanley Point, or Remuera Road, sticking out now just as those same buildings did when I was his age in the 1970s.
But staying in an older part of town I was also reflecting more generally on both past and present Auckland. 100 years ago, Auckland was the largest city in one of the two or three wealthiest countries in the world. By the standards of the day, it must have offered ordinary working people some of the best material living standards on offer anywhere. And if Auckland was our largest city then, it certainly wasn’t a dominant one. In the 1911 census, the total New Zealand population had just crept above 1000000 (1008468). And here were the total populations of the main urban areas (encompassing surburban boroughs, not just the respective city council areas).
Auckland’s population was just 10 per cent of the total. At the same time Hamilton borough had a population of 3500, and Tauranga a population of 1300.
These days, Auckland makes up almost 35 per cent of the total population. These days, with New Zealand GDP per capita around 30th in the world (depending which list one uses), there are likely to be many many cities (perhaps 100 or more, given that big countries such as the US, Germany, Japan, France, and the United Kingdom are richer than us, as well as many small countries) offering better living standards to ordinary working people than can be found in Auckland. That would be true even on metrics like GDP per capita, with the problems accentuated by the disastrously unaffordable housing market.
Of course Auckland’s relative decline is largely part of the overall stark relative decline of New Zealand. I’m sure we’ll see plenty of bluster from the current government in the election campaign that is getting underway, but I dug out the Prime Minister’s campaign statement from the 1911 election campaign published in the Herald on 6 December 1911. It is partisan of course, but when Joseph Ward asserted that
The Liberal Government can claim without fear of contradiction to have made New Zealand in every department of social activity the most advanced country in the world.
Present and Future. New Zealand’s prosperity is solid and beyond question. Its population today is greater by 400,000 people than in 1893 and obviously the work of the Government has greatly increased. In the history of every country there are periodical fluctuations, seasonable ups and downs. We are influenced by the conditions ruling in other parts of the world. We cannot be always on the crest of the wave. But look round on the other countries. Mark what vicissitudes and oppressions they have passed through. Familiarise yourselves with the facts regarding the rich and resourceful United States of America, and then decide whether I am not justified in my reiterated assertion that New Zealand to-day is the most prosperous country in the world.
It is hard not to think that, even with the benefit of hindsight and the best efforts economic historians can do to compare living standards across countries, Ward was speaking the truth. (It didn’t do his party much good, as they lost office – after 20 years – shortly afterwards).
These days we get fatuous comparisons of growth rates across countries, rarely adjusted for rapid population growth, but no one dares to claim New Zealand is even close to the most prosperous country in the world.
Wandering around Auckland was also a reminder of the extent to which Auckland’s economy is largely about supporting its own rapid population growth. Check out the names on the high rises in the central city and you’ll struggle to find many New Zealand owned brands or companies (the banks and insurance companies, eg are almost all foreign-owned), and especially not if one is looking for firms making it in the international markets. I’m all for foreign investment, but in a thriving economy it would be a two-way street – not only would we have much more inward foreign investment but there would be a lot more offshore foreign investment too, as successful New Zealand firms took themselves to the wider world. The pictures are never entirely black and white. There are success stories like Air New Zealand (although with majority state ownership and the constraints of that industry who knows if it would still be New Zealand owned and run in a fully competitive market). On a (much) smaller scale, I noticed billboards for ACG, which has taken its educational offerings abroad.
And there is, of course, the export education industry. But even the reputable bits of that industry have the ground skewed in their favour by “industry subsidies” – whether it is cheap access to PhD programmes for foreign students, or the way export education is bundled with preferential access to work rights and residence options in New Zealand. And then there are the less reputable bits. We took the kids ice-skating in Aotea Square and while they skated I contemplated the prominent building across the street with the big Cornell name and crest. Not, surely, we thought the top US university with an operation here? And no, it was the Cornell Institute of Business and Technology about which the authorities (and former staff) seem to have some pretty serious questions. It was the most prominent tradables sector building I noticed in Queen St.
And yet, this is the city in which the hopes and dreams of the New Zealand agglomerationists are invested. If the strategy – putting more and more people into Auckland, even as New Zealanders have been leaving – was any sort of economic success, surely we’d be seeing a succession of strong outwardly-oriented private sector businesses increasingly dominating the Auckland skyline? But there is simply no sign of it. Perhaps these successful firms are skulking in the suburbs and industrial areas? I’m sure there are some highly successful examples, but there is no sign of it happening on the sort of scale needed if a non-natural resource based economy, successfully taking on the world and winning, is to develop in ways that would support top tier living standards for many more people. If the model were correct, Auckland should be leading the way. But it isn’t.
Really successful cities internationally, in economies that have gravitated away from dependence on (fixed) natural resources, tend to have GDP per capita a long way above that in the rest of the country. And, typically, that gap is widening.
I ran this chart last year
Here is the Auckland chart for the years since the regional GDP data began in 2000. It shows average GDP per capita in Auckland relative to that in the rest of New Zealand (so the margin is larger than in the chart above, which uses the relationship between the biggest city and the whole country – the biggest city typically being a large chunk of the country).
The ratio does appear to be somewhat cyclical. Probably what is going on is that when there is a big surge of immigrants (as in the early 2000s and recently) there is a big increase in the activity required simply to accommodate the new arrivals (building houses, roads, schools etc), but the trend is downwards. Average incomes in Auckland are higher than in the rest of the country, but the margin is small and has been shrinking.
In the annual regional GDP data, SNZ also provide an industry breakdown. As regular readers know, I’ve highlighted previously the pretty dismal state of the New Zealand tradables sector – the main bits (agriculture and mining, manufacturing, and exports of services (mostly tourism and export education)) that compete with the rest of the world. In real per capita terms, there has been no growth in that measure since around 2000.
We can’t do that calculation at a regional level. But here is another proxy. In this chart, I’ve included agriculture, forestry, fishing, mining, manufacturing, and education and traning as a loose proxy for Auckland’s tradables sector. Of course, lots of education is totally domestic-focused, but export education is probably the main export sector centred in Auckland. It has grown quite a bit in recent years.
There will be successful internationally-oriented Auckland-based firms lurking in some of the other services sectors, but (I’d assert) not many and not very large. This simply isn’t what one should be expecting to see if the Auckland-focused (de facto, since that is what a large immigration target amounts to in practice) Think Big policy were working for New Zealanders as a whole.
It is close to a tragedy. A deeply misguided policy, however well-intentioned, has reduced what was once one of the richest cities in the world to a rather mediocre mess: with few industries successfully competing internationally (in a small country the only long-term basis for prosperity), economic activity doing well only when a lot has to be built to accommodate yet another huge surge of new people, and houses so expensive that ever-fewer of the inhabitants can afford to buy. It is still a great location and a wonderful climate but think how much better material living standards Auckland might offer its ordinary working people if, say, in a country of 3.5 million people, we had an Auckland of perhaps 750000. Quite plausibly, that is how things might have played out with less overall population pressures – deferring to the wisdom of the New Zealanders leaving, rather than superimposing politicians’ and bureaucrats’ judgements – and a much lower average real exchange rate.
It isn’t too late to fix up New Zealand, but it does require a pretty dramatic change of course. Wouldn’t it be wonderful if in thirty years time some campaigning Prime Minister could once again honestly make the sorts of assertions about economic and social success that Joseph Ward was making in 1911? Sadly, judging by the political rhetoric this year none of our politicians is interested.