Back to the future, with 2000

Twenty second-hand computers in a rundown disused court building in Wairoa are among the first concrete signs of a new "hands-on" approach to economic policy.

Thirteen years ago, the previous Labour Government abandoned the idea of trying to reduce the seemingly inevitable flow of jobs from declining regions, such as Wairoa, to cities such as Auckland.

"Regional development" grants became available in Auckland on the same basis as anywhere else.

Now regional development is back in favour. Jim Anderton, the Alliance leader who is now Minister for Economic Development, is giving priority to the region with the highest unemployment, the East Coast.

And the first fruit of the Tairawhiti Development Taskforce, which he has chaired for the past six months, is Wairoa's new community internet "hub," which he will open on November 24.

"It will reduce the size of the world - for us it will be just catching up," says Rangi Manuel of the Wairoa-Waikaremoana Maori Trust Board.

"There are a lot of my people who can't afford the internet. The schools are closed from 3.30 pm to 9.30 am. We are trying to provide a service for kids, and anyone in the community, who can't access the internet."

If you feel poor the next time you fill up with petrol, consider Wairoa. In the 1996 census, 49 per cent of the district's 6969 adults were on income support; 35 per cent of the households in Wairoa town did not even have the first step that would make internet access possible - a telephone.

Yet, despite chronic local unemployment, East Coast forestry companies told the Government in March that they would have to import workers from Fiji and the Philippines unless they got support for high-pressure training programmes to overcome an acute shortage of skilled labour.

"Forestry is not a low-skill industry," Mr Anderton explained to a Manukau audience in August.

"If you go into any mill now, it has laser technology. The people who work there work with computers. To train for that, you have to know what you're doing.

"In that area [the East Coast], there is one computer for 30 kids. The nationwide rate is 1:9.

"I went back to Wellington and got one of my staff to ring every Government department and ask, 'How many spare computers do you have?'

" 'Oh, we've got a few out the back,' they said. Within a day we had 2000 computers 'out the back'. Well they're coming out front."

Wellington's cast-offs are being prepared for the East Coast at Government expense. Twenty each are going into 13 community "hubs" such as the pilot one in Wairoa. The rest will go into schools from Wairoa to East Cape to ensure, initially, that there is at least one for every class.

The initiative raises a fundamental issue about our economic goals as a country - usually expressed as growth in gross domestic product (GDP). In a Herald article on October 24, Andrew Grant of McKinsey & Co suggested a target of GDP growth 2 per cent a year faster than that of Australia and Britain, whose higher salaries make them the two main lures for New Zealanders.

In contrast, regional development policies start with the fact that most of us are staying put. Wairoa's population dropped by only 5.5 per cent in the decade to 1996.

In other words, despite economists' assumptions, we evidently value other things, such as our families and communities, more highly than a few extra dollars.

Rather than assuming that we all want to be as rich as Bill Gates, regional developers implicitly assume that our economic goal is actually to ensure that everyone has access to a comfortable, though not excessive, standard of living.

Most other countries have never lost this perspective. Throughout the Thatcher years, the Scottish Development Agency subsidised job-creating investment in Scotland. In 1998-99, its grants totalled £71 million ($200 million).

The European Community spends 1.27 per cent of its GDP on "structural assistance" to regions which have less than three-quarters of average European incomes or other economic problems. In NZ terms, that would be $1.3 billion a year.

The money goes partly into education, research, and grants and loans for new businesses. But the top priority, as in Wairoa, is improving transport, energy and telecommunications - "guaranteeing fair access for all to services of general interest."

In Australia, the Victorian Government has established a $A170 million fund over three years to support new industry, infrastructure education and information technology outside Melbourne.

In New Zealand, the Kirk Labour Government in 1973 introduced grants for regional feasibility studies, suspensory loans for new businesses which converted to grants if the loan conditions were fulfilled, and concessional loans with no repayments in the first five years.

By the end of the Muldoon Government in 1984, these were available in 11 priority regions. Spending peaked in 1984-85 at $12.5 million.

In addition, by 1984-85 the Development Finance Corporation was lending $46.2 million a year to businesses in the priority regions, and South Island businesses got rail and power subsidies worth $18.9 million.

All this ended with the Lange Labour Government of 1984-1990. Subsidies, suspensory and concessional loans were abolished. The DFC was sold and went broke.

Only grants for feasibility studies for business activities which were new to a region were retained, and they became available throughout the country. Even these ended in 1995.

David Butcher, Regional Development Minister from 1987-1990, recalls Dunedin MP Stan Rodger warning that ending the South Island subsidies would mean the closure of Dunedin chocolate factory Cadbury-Fry-Hudson.

It didn't happen. Dunedin unionist Neville Donaldson says Cadbury's is "still going very, very strongly."

Mr Butcher says: "No one came back and said, 'these rail freight subsidies were absolutely vital'. What we were doing was giving gifts to firms that were faring quite happily."

He says the best way for provincial areas to lift their economic performance is to cut costs, including wages. If housing and commuting costs are lower in Wairoa than in Auckland, then Wairoa people can be just as well off as Aucklanders, even on lower wages.

Former National Treasurer Bill English says regions should build on cast-offs their strengths, such as farm-based technology, rather than create new businesses artificially.

"There is any number of factories set up in places like Masterton and Invercargill which did not have a broad effect on the local economy."

There are similar examples overseas. Marlborough Express editor Brendon Burns cites a German company that took a $2 million grant to build a factory near Glasgow, then closed it and moved to England.

The European Union says regional disparities "seem immutable." Despite the billions it gave poorer regions in the decade to 1996, average incomes in Europe's 25 poorest regions rose only from 53 per cent to 55 per cent of the European average.

In New Zealand, regional disparities are smaller. Average incomes in our three poorest regions - Northland, Gisborne and the West Coast - are all 85 or 86 per cent of the NZ average.

And the new Labour Government's regional development subsidies are tiny. Even when they reach $16.9 million a year by 2002-2003, they will represent only 0.014 per cent of GDP - only one-fourteenth of the 0.2 per cent spent on all regional assistance in 1984-85.

There are no loans or venture capital funds as in the 1973-1987 period. Instead, Industry NZ is providing advice and grants of up to $10,000 for businesses with up to 20 people, plus tailor-made packages for "strategic" investments employing more than 200 people.

The regional development programme offers:

Up to $100,000 for each region in each three-year cycle for "strategic planning."

Up to $100,000 for each region each year for "capability building," such as employing consultants.

Up to $2 million for "major regional initiatives."

The regions must contribute at least 30 per cent of the costs for the first two categories and at least 25 per cent for the major initiatives. Proposals must "make the most of a region's resources, businesses and people to create a sustainable advantage."

There are no priority regions. Any group can define its own region.

By the September 29 closing date, Industry NZ had received 137 expressions of interest from regional groups seeking total funding of $109 million - 19 times this year's budget.

Some are from traditional regions. The Northland Regional Council Community Trust, for example, is seeking $100,000 to develop a regional economic development strategy.

Auckland's seven councils have jointly requested up to $100,000 to develop a "regional economic development framework" including four "clusters": information technology, marine industry, films, and arts and culture.

Proposed "strategic initiatives" include Manukau's $40 million Pacific Arena, and a potentially $500 million-plus scheme from Auckland's Carlyle Venture Capital to provide fast internet-capable phone links to provincial NZ in a joint venture with regional funding and energy trusts.

There are also bids for projects such as scallop farming in Northland, a Pacific Island cultural centre in Waitakere, a new Auckland theatre, an innovation park at Waikato University and tourist facilities on Matakana Island.

However, almost by accident, Mr Anderton seems to have realised that these grants alone will not be enough to ensure that all New Zealanders get access to paid work and comfortable living standards.

Invited by Gisborne Mayor John Clarke to look at East Coast regional development, he hit on a taskforce approach backed by the "whole-of-government."

The taskforce includes the mayors of Gisborne and Wairoa, the region's general and Maori MPs, three iwi groups, and five business and community leaders.

It asked the public for ideas and received 150 of them, ranging from local marae development to an international call centre. Many have been referred to local or national agencies.

The taskforce has focused all groups' efforts on key issues such as forestry, where further processing plants will be built only if roads from the forests are upgraded and local workers are trained. Mr Anderton ordered his ministry to give top priority to this issue.

Other departments have been brought in when needed - for example, supplying those 2000 computers to East Coast schools. The Army has taken a roadshow up the coast to recruit unemployed young people into its limited-service volunteer scheme.

Mr Anderton now wants to create similar taskforces in other regions, possibly starting with Northland and South Waikato.

It is a pragmatic approach aimed at pulling every lever that might help until everyone in each region - even in the poorest areas - achieves that goal of access to paid work and comfortable living standards.

So far, it is constrained by a minimal budget, providing only nominal start-up grants, and by the policy decision not to mobilise public funds to lend or invest in private businesses.

But the change of direction is clear. As Mr Anderton puts it, after 13 years central Government is finally no longer "the missing partner."

Herald Online feature: The jobs challenge

We invite your responses to a series of questions such as: what key policies would make it easier for unemployed people to move into and generate jobs?