Friday, 27 October 2017

Regional development is hard

The coalition deal between Labour and New Zealand First includes a regional development push, along with a billion-dollar fund for spending to help things along.

But regional development is hard. The Economist provides a decent survey of the issues:

  • Agglomeration has become more powerful, so regional convergence within the US has reversed. Productive places become more productive. 
  • Infrastructure and redevelopment projects don't have a great track record in improving things.
  • Dumb urban planning rules make it too hard for people to move to productive places, but fixing those rules could hasten decline in declining places. 
  • Tax incentives and enterprise zones that provide hiring subsidies don't work. They don't raise employment, and if they do, it's by beggaring the neighbouring places that don't get the incentives.
  • Local spending pushes have temporary effects, but don't last.
The piece is more optimistic about efforts to spark new industrial clusters, like South Carolina's tax incentives and subsidies for a new BMW plant that later led to Volvo setting up a plant nearby drawing on some of the same suppliers that showed up to supply the BMW plant. But that too is risky. Subsidy races between towns are great for the firms getting the subsidies, but not so hot for the towns that have to bribe firms to show up.

The Economist also is optimistic about setting up regional colleges that focus on training local firms and workers in new technologies in hopes of encouraging technological diffusion to the longer tail of less productive firms away from the bleeding edge cities. I wonder whether anybody's ever evaluated whether SIT led to greater productivity for firms in Invercargill as compared to other regional centres. 

I'm still optimistic, for New Zealand, about the prospect of special economic zones that might let local communities opt out of national-level policies or regulations that aren't fit for local purpose. Winston Peters' proposed SEZ around a new port in Northland doesn't fit the bill as it just looks to provide tax concessions around the port area rather than build a broader policy structure to suit local conditions. But special economic zones as policy trial areas are a promising way of allowing more devolution and localism for the councils that are ready to take up the challenge. 

And I hope that at least some of the billion-dollar fund is used to improve tourist-facing amenities in regional centres that bear a greater part of the costs of tourism than they receive in benefits.

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