Can the government really kickstart regional economy?

Geoff SimmonsEconomics

Over the last few weeks a range of economic development policies have emerged from across the political spectrum. They vary from the weird to the wonderful, but all of them suffer from the same problem – the delusion that the government can always create jobs and stimulate regions and industries. Yesterday we looked at job creation. Today we look at stimulating the provinces and industry

Stimulating the provinces

Not only are our politicians worried about providing jobs, but they care about where they are too. Incredibly, both our major political parties have felt the need to offer a hand out to the regions. Labour has promised a $200m slush fund for regional development projects, while National have committed a similar amount to regional roading projects, as well as the previously announced rural broadband.

The focus on roading & broadband is more justifiable – government is responsible for infrastructure. But like the rest of their Roads of National Significance, there seems to be no rhyme nor reason to National’s transport spending. Let’s see a list of transport projects and their relative pay back, comparing apples with apples. Then it would be obvious where the money should go. In contrast, Labour’s promise looks like even more of a regional lolly scramble.

As Gareth points out in the above video, the real question is why should government interfere in people’s choices of where to live? This is where our idea of a universal basic income would be helpful – the government would pay the same basic income to everyone in society regardless of where they live or what they do. If people choose to pursue a fulfilling life by carving in Murupara, or feeding chooks in Takaka, or writing poetry in Dunedin, so be it.


Again, all our major parties have their snouts in the trough on this one. All the parties are supporting research and development in their own way, and each have their pet industries:

  • Labour have manufacturing, forestry, ICT and the meat sector,
  • National has primary industries generally, and
  • The Greens are targeting clean tech through their Green Investment Bank.

Some of these industrial policies are business as usual – providing the infrastructure and regulation for businesses to operate in. And sometimes as a matter of course government spending needs to be targeted on certain industries, for example spending on training and research. That is just smart management. The same goes for putting a price on carbon. Labour and Greens are using a bolstered Emissions Trading Scheme (or carbon tax in the Green’s case) to push investment in forestry and renewable energy. Given the problem that climate change poses the world, and that we will eventually need to reduce emissions, this is a legitimate policy tool. The key is that none of these policies are about supporting an industry – they all have other goals.

However, beware of glitzy announcements of new spending that targets particular industries. This should (rightly) be challenged by the business community as picking winners. National are quick to point the finger at Labour and the Greens on this issue (the Green Investment Bank is a good example), but they have also been guilty of favouring certain industries themselves on a number of occasions:

  • the primary sector with their primary growth partnerships and irrigation fund,
  • propping up Tiwai Point, and
  • subsidies to the film industry.

Most of this industrial policy is really dealing with the symptom rather than the root cause of the problem. Yes many of our industries are suffering from a lack of investment and a roaringly high dollar. However, the investment dearth is being driven by our obsession with investing in housing. This is fuelled by policy distortions – tax benefits to housing and the Reserve Bank rating housing debt as ‘safer’ than other types of debt. Get rid of these distortions and the supposed need for Government corrective interventions to save certain industries (like manufacturing) or prop up investment in research and development disappears.


Can the government really kickstart regional economy? was last modified: December 15th, 2015 by Geoff Simmons
About the Author

Geoff Simmons

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Geoff Simmons is an economist working for the Morgan Foundation. Geoff has an Honours degree from Auckland University and over ten years experience working for NZ Treasury and as a manager in the UK civil service. Geoff has co-authored three books alongside Gareth.