Owen McShane: Public vote for malls with their wallets

Owen McShane

Opinion

The Weekend Herald feature headlined "The malls eating Auckland" pointed up the dilemma that puzzles central planners everywhere.

When they ask us what we think of shopping malls, we say we hate them, but when the malls are built we flock to them.

Similarly, when we are asked, "Should Auckland be allowed to sprawl?" we dutifully say how much we hate sprawl. But when asked, "Where do you plan to spend your retirement?" we are likely to respond "In the countryside". And we do.

Back in the 1960s I was part of a team who asked Aucklanders if they wanted rapid rail. They all said yes. When we asked if they would actually ride on the train, they replied: "No, but everyone else will - and I'll have more room to drive on the motorways".

Most consultations are designed to confirm the planners' own prejudices rather than reveal the truth, and central planners instinctively hanker for the solutions of the past. Their simpler solutions sit more comfortably in a simpler age.

We encourage them because we tend to be nostalgic for the good old days. We fear emerging change until we seize the opportunity to enjoy it. We tick the "Walk to the corner store" box in the survey form, but then jump in the car and drive to the Big Red Shed.

Before we allow planners to dictate the future of retailing in the region, and even invest ratepayers' money in promoting their own visions of shopping utopia, we should pay attention to what has happened elsewhere in the world where planners have prevailed over innovators in the retailing sector.

Those "greedy developers" actually put their own money at risk, and their surveys are designed to extract the truth. Hence their decisions reflect people's real aspirations and behaviour rather than the "visions" of bureaucrats spending other people's money.

Fortunately, others have carried out the experiment. The results are to hand and favour the experts.

In 1994, the McKinsey Global Institute carried out a study of several developed economies to examine the impact of land use on several sectors within those economies. One of the sectors was retailing, because retailing is so important in creating jobs and stimulating innovation.

The study found that regulation which tried to protect established centres actually caused huge damage to the retailing sector, including its staff and customers.

For example, the lightly regulated retailing sector of the United States created an additional 4.9 jobs per 1000 of the working-age population, increased average wages and overall productivity, and performed the best of all seven surveyed countries.

France, which set out to save its main-street and family shopping from these dreadful American trends, performed worst. The French regulators actually destroyed jobs in the retailing sector, losing 3.9 jobs per 1000 working population. Wages, productivity and service also declined.

The most unexpected outcome was the harmful impact on the fashion industry, which found it easier to build new outlets in Singapore, Hong Kong and the US than in France.

The landlords of the protected centres enjoyed monopoly rents and did not have to compete to survive. The high rentals prevented new young designers from finding low-cost outlets to test their wares and ideas. Innovation moved overseas.

France had let the regulators destroy those they were supposed to protect. The US decided that customers knew best and allowed developers to meet their needs.

Of course, changes in retail structure will create losers as well as winners.

Most of the retail outlets in your small shopping centre are selling goods and services that did not exist 10 or 20 years ago. Your local butcher and greengrocer move out, and the photo-shop and computer store move in. Churches turn into restaurants, banks turn into fashion stores, and cinemas turn into auction rooms. Change allows change. Protection kills it.

The McKinsey report found that protecting main-street shopping not only hindered the development of the large retail outlets but also impeded the development of high value-added stores similar to Nautica, Saks, Vinotica, and Country Road.

Quite simply, the US allowed the providers to respond to changes in customer demand and hence expanded the whole economy.

The regulators in Japan, France and Germany achieved just the opposite. Our regulators threaten to produce the same harmful outcomes.

Ironically, the regulations used to protect small centres are being used by the biggest operators, such as Westfield, to block local innovations such as Josephine Grierson's proposal for a discount brand centre in a long-empty garden centre at Northcote.

What do Aucklanders really want? We shall never know unless the "consultation" process spells out the trade-offs, so we better understand the outcomes of our choices.

If we are asked, "Do you want to shop in vibrant community centres or in bland big boxes in huge carparks?" we are likely to express our natural nostalgia for times past.

But if a second question asked us, "Would you make this choice, even if it meant fewer jobs, lower wages and reduced opportunities for your children and grandchildren", we might well think twice.

* Owen McShane is the director of the Centre for Resource Management Studies.