Tuesday, 27 March 2012

Leaving the farm

Bill Kaye-Blake says there's not much that can be done about long-term trends towards rural depopulation. And he puts rural New Zealand especially on the wrong side of broader trends:
Technology isn’t going to be the saviour of rural New Zealand. We’ve been hearing for years that new communications technologies (will) allow us all to work from home, the cafe, and the beach. We do that to some extent. A few people do build business empires on the back of broadband. But we also spend lots of time in our offices, seeing and talking with our co-workers. One of the interesting economic geography arguments I’ve seen is that technology is making face-time more valuable. As a result, work that requires us to spend time with each other is becoming more highly paid, and work that can be made routine and parceled out in bits and bytes is becoming less valuable. New Zealand is on the wrong side of that trend, and rural areas even more so.
Let's take the agglomeration economic geography arguments as starting point. Tech is more a complement to big cities than they are a substitute for face to face interactions. Who gets the strongest benefit from this in a world that's mostly free-trading? Big global cities, not Auckland. Our small size makes us, over time, less competitive in sectors that compete with international big-city industries; our comparative advantage then pushes farther towards agricultural production.

This is already happening too: it's not crazy to see the "Dutch Disease" stuff as just being international markets telling us to put resources into the sector where we have a comparative advantage (dairy, ag production), abandon the ones where we don't, and build non-traded services around the sector where we have the comparative advantage. Our cities would then wind up doing more to provide domestic support services for the ag sector than building innovative non-agricultural products for international markets. And then it's a bit of a race between productivity increases in domestic agriculture pushing down needed labour and relative prices pushing towards intensified agricultural production yielding migration flows to the countryside.

Best counterargument: Peter Thiel is investing heavily in the NZ tech sector, seeing here perhaps a comparative advantage in sane regulatory approaches (albeit one that's eroding).

I still favour strongly increased immigration coupled with fixing urban land use policy to make our cities more internationally competitive. And who knows - maybe some of those migrants would then decide they'd prefer to live out in the countryside. It is ridiculously beautiful out there.


  1. So if you are saying Auckland (pop 1.4m) is on the wrong side of the line, then you are setting the bar reasonably high in terms of cities that benefit from agglomeration economics.

    If you set the bar at Sydney/Melbourne, I would guess a fairly small proportion of the worlds population lives at these densities (my rough, wikipedia informed estimate is less than 10%).

    If only very large cities are going to survive as anything other than trading posts, a large percentage of the worlds population should eventually end up in these cities. Current trends have Auckland attracting a significant amount of migration (domestic and international). If it was on the wrong side of the line would we not expect this to be more subdued and heading toward stagnation? If, by luck (and as projected in the next 30 years), Auckland gets to 2.5m is this enough?

    1. It's awfully hard to say without better estimates on the curvature of agglomeration effects with population over time; I don't think we're anywhere near being able to say. How many cities does China have that have more people than all of New Zealand? More than 20? And another 8 or so in India?

      I don't think we understand well enough whether agglomeration effects come mainly from absolute size and the division of labour, or from relative size and the attractiveness of relatively large cities to more innovative people.

      You can make entirely non-crazy arguments that, if it's mainly on relative size that helps with agglomeration, then it's pointless even to think about being in that game. Get the infrastructure right, maybe ease up on immigration restrictions a bit, but be really happy doing well in exporting agricultural commodities. Stop worrying about the effects of commodity prices on other manufacturing industries via the exchange rate because long-term, we're agriculture anyway.

      2.5m really isn't that big. If Auckland allowed more building up, it wouldn't have to have big real estate price effects either.