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Can A Renewed Provincial Growth Fund Save Us?

Written By: - Date published: 7:33 am, July 20th, 2020 - 43 comments
Categories: Economy, jobs, manufacturing - Tags:

With the simultaneous decline of Southland’s Tiwai Point aluminium smelter,

the retrenchment of Waikato/South Auckland’s New Zealand Steel’s Glenbrook Steel mill (noting it was our own Sir Woolfe Fisher who cracked the code that would enable iron sand smelting),

and the near-total shrinking of NZ Refining in Whangarei’s Marsden Point – not forgetting the regular job-rich multi-hundred-million upgrades these plants always need

it’s not unreasonable to ask what will happen to the 10% of New Zealand who are employed in major manufacturing plants.

There are a few, just a very rare few manufacturers who remain New Zealand-owned and who return their profits locally to Kiwis. I’d like to give a shoutout to Douglas Pharmaceuticals in Henderson here.

For the regions that are affected, just as we went through in the early 1990s, the jobs there are well paid, often well unionised, and they will never be replaced by anything equivalent. The first full time job I ever had was as a kiln operator in Crown Lynn – fully unionised with triple time on a Sunday, and free dinners for the nightshift. Auckland’s New Lynn was a thriving centre of heavy manufacturing. Now, despite over $300 million of major town centre renewals in the 2010s, New Lynn is not an employment centre at all and is reduced to being a squalid little village of used car yards. That’s what awaits Waiuku, Bluff, Invercargill and Marsden Point unless pretty major intervention is taken.

What is noticeable in all three major businesses is that there has been plenty of market turbulence, commodity flatlining, and industrial warnings about their demise, but no plan set in place either locally or nationally to respond to the employment and social devastation that their shrinkage or closure will generate in their communities and regions.

All three businesses were specifically formed from policy groundwork in the late 1950s to promote a self-sufficient industrial and manufacturing base. As economist Brian Easton notes in The Nationbuilders, they “laid the foundation for the major export diversification which occurred in the 1970s” (p. 165). When W.B. Sutch talked about this possibility he gave New Zealanders the confidence that non-pastoral exporting could succeed.

Even if you don’t buy the need for even a modicum of New Zealand industrial self-sufficiency, these businesses have kept tends of thousands of hot meals served under rooves whose mortgages were paid by good industrial salaries. The fact that there is no plan to turn this highly skilled and paid workforce into new productive enterprises is a crime of the highest political order.

Enter the Provincial Growth Fund.

Have a trawl through its documents, purpose and successes. This is a $3 billion fund set up to “help grow economic development in the regions”. Post Covid, much of its unspent fund has been repurposed on shorter-term projects who (so their local government proponents claim) are “shovel ready”.

The successes of this fund have been massive for the smaller town centres and businesses that it was set up to serve.

In time we will be able to measure the collective impact of these projects as softening the terrible economic blow of our global economic crisis through highly targeted investment in stuff that was good for the jobs of our region.

But we are now facing the largest enforced economic restructure to beset us since the Great Depression. There is of course no one silver bullet to fixing our massive predicament. And we remain owned by our Australian-owned slavery within our Finance, Insurance and Real Estate sectors.

Yet we should be intensely proud of the degree of sector diversification we have achieved since the Knowledge Wave conference under the Clark government. Screen production, tourism, the ICT sector particularly gaming, biotech – each of these areas have seen industry bodies and policy responses evolve to respond to their massive growth.

But the regions are now in desperate trouble both with the collapse of tourism in some areas and the collapse of heavy industry in others.

MBIE needs to be instructed to redouble its efforts to expand, not contract, the mandate and funding of the Provincial Growth Fund in the new government to re-build after the economic earthquake we are in. It’s larger in scale and effect than the old regional industry programmes available in the last two terms of the Clark government. It’s larger in scale than anything since Think Big.

What we used to have in New Zealand was butter and logs – it was 90% of what we exported in the 1940s, and still farming was about 55% of our exports in the 1990s. Sixty years ago a really deliberate set of policy interventions led by strong bureaucrats and by cross-party leadership and with the inclusion of unions and industry led to alter our course, generating high quality jobs and thriving regions.

The era of those industries appears to be coming to an end.

What we need now, for this time and this crisis, is the bold policy framework that can forge that same degree of boldness, enthusiasm, and creativity to rebuild the Provincial Growth Fund to something truly up to the task that faces us as our remaining heavy industry closes down.

43 comments on “Can A Renewed Provincial Growth Fund Save Us?”

  1. Gosman 1

    NZ's economy is far too small to support efficient large scale industrial plants like Tiwai point or Glenbrook. This means for any chance of them being profitable they need to export. To export requires them to be even more efficient because we can't protect them in the overseas export markets. The only alternative is to provide them export subsidies or try and artifically create a market for their output in NZ. These are incredibly wasteful use of resources.

    • lprent 1.1

      Surprisingly, I actually partially agree.

      Our local market is simply too small to rely on industrial plants that have to import raw materials from thousands of kilometres and then export almost all of its production tens thousands of kilometres.

      Something like NZ Steel does become worth while supporting at a strategic level. Most of its production is used locally.

      But I'd also agree with the actual content of Advantage's post. It isn't enough to simply close uneconomic plant.

      What we need now, for this time and this crisis, is the bold policy framework that can forge that same degree of boldness, enthusiasm, and creativity to rebuild the Provincial Growth Fund to something truly up to the task that faces us as our remaining heavy industry closes down.

      This isn't a task that private industry (or for that matter National) simply are not capable of leading. Neither has any sense of focus past a few years. Thee are myopic imbeciles.

      For instance, just look back at the puny political legacy of John Key and you'll see what I mean. It was a decade of wasted opportunities where the National government never looked up far enough from its immediate economic sugar rush of risky expansion of tourism, overseas students, increased immigration, and excessive dairy expansion to see the risk levels that faced NZ from exclusively pursuing those narrow activities. The first three were always highly susceptible to anything that damages international travel. The latter was highly and probably permanently polluting in the wrong geomorphology and would obviously damage our waterways to the point of affecting supply of water for both cities and other rural industries.

      We rely on our state and politicians for providing a vision that extends decades into the future and looking at the balance of where we as a nation wish to go. Private industry capable of providing the sinews to develop these enterprises.

      Like the knowledge wave of the early 00s will push to develop new employment opportunities and new exports to pay for what we cannot economically supply here.

      • Sacha 1.1.1

        Reshaping NZ manufacturing away from reliance on high volume is essential, and I agree the ‘market’ is failing at it.

        One example is the fashion industry where we will never compete against cheap imported teeshirts but local sample machinists for high-margin designers are dwindling. They cannot afford to update old machinery despite being a strategic component of a valuable industry.

        Another would be local music performance. There is a shortage of venues with their own good gear like the old pub network used to offer. That way, a performer only needs to turn up and plug in minimal equipment rather than carting an entire PA with them.

        Why not fund well-equipped performing venues with local staff and even teaching programmes to build audio production and engineering expertise all across the nation? Like the screen industry, music carries our stories to the world.

        Or does our govt only see roads, farms, and big conference centres as valid investments?

        • greywarshark 1.1.1.1

          Sacha – these points should feed into government brains. yes

        • Gosman 1.1.1.2

          The NZ film industry was small fry UNTIL Peter Jackson essentially supercharged it via getting massive amount of overseas investment in to the country to support large scale Hollywood productions here. Without this we would have remained a feeder area to the bigger industry in Australia and the US and occasionally used as a location for some productions. The music industry is completely different. Artists like Lord still go to the US to make it big.

          • Sacha 1.1.1.2.1

            Screen productions like Xena and Spartacus probably had at least as big an impact as Jackson's. Gigs like Shortland Street have continued to be a training ground for both cast and crew.

            Performers, producers and support crew like engineers and riggers usually need a local tier they can readily access before making it big overseas or even nationally. Lorde is a freak but even her success depended on locally-available production talent in Joel Little, a short ferry and train ride away from her home.

      • SPC 1.1.2

        There is the issue of quality of steel (regulatory matter) if we import (apparently most of the Comalco aluminium goes offshore so little change there). And we would need to hold more fuel in reserve if we stopped refining.

        There is a lot of investment to be done in the regions – water storage, safe water, modern treatment of waste, just not so much that directly adds to the so called productive economy. The same for better rail/transport links so they become more desirable places to live for returning Kiwis – who may have online world market job skills. Some things are interconnected.

        • lprent 1.1.2.1

          I'd agree about holding more fuel in reserves. However the only real economic reason for refining locally is to process the locally produced oil (mostly a by-product of the gas fields). Since the exploration wells are coming up either as dry or too expensive to extract within the foreseeable future – that is an industry

          Basically all of the oil companies apart from Excon are offloading expensive reserves and refining capacity these days according to a recent Economist. Mostly because they can't see a future of an expanding oil market in the face of lithium batteries.

          The issue with regions is just another issue with a long term under-investment in infrastructure, not only in the regions, but even more so in the urban areas.

          At the extreme Auckland has been expanding massively at almost an order of magnitude larger levels than any other region or city in NZ. There has been and still isn't much population movement in almost any other areas apart from the major urban areas. Yet the infrastructure hasn't kept pace for anything (apart from the unfinished work in the ChCh CBD) over several decades – water, sewerage, roads, public transport, parks, etc.

          Sure going for more amenities in regional areas would be nice. The problem is that there has been no progress at all in moving substantial number of people apart from a trickle of elderly retirees selling up to any non urban region.

          It is a chicken and egg problem. Currently the high paying work is in the major cities. Most of the really productive and well paying jobs there is directly or indirectly focused on exports. The work in the regions is as well – but way less jobs directly or indirectly – once you take tourism out.

          And I suspect that tourism will be out for a large chunk of the decade.

          Trying to grow businesses in the regions is a whole different ball game to needing more infrastructure. Most of their existing jobs are inherently based around commodity and tourism industries directly or indirectly and there really aren't the many high paying jobs in them. Good place for small local businesses. Lousy places for good employment opportunities.

          But as the tech industry found in the 90s and 00s – it takes at least a a decade to expand to a self-supporting business community that sells primarily into overseas markets. Look at Xero for the best and probably fastest possible example. I remember playing around with in in 2008, 2 yeas after they formed. It only took them a decade before they really started to grow out of the local markets of NZ and Aussie. Now they're pretty exponential. But that was a very fast startup – and their NZ operations are focused in expensive cities because that is where the talent is.

          The main infrastructure that the regions currently need seems to be better networks and better education possibilities so people don't have to go to Auckland, Wellington or ChCh to find the 'local' talent to build knowledge based industries.

    • Molly 1.2

      NZ Steel most likely is competing against imports that have subsidised production by the Chinese government, which is untrue, according to reports by MBIE given data provided by the manufacturers themselves.

      However, if it was true, then anti-dumping laws would allow us to restrict imports or impose conditions that gave NZ Steel a more competitive advantage. It depends on the quality of information given. Not to mention the quality assurance for the steel itself, one example being the Waikato highway.

      As lprent mentions below, local use will keep this industry strategically placed to provide confirmed quality steel without need for export markets. There is also a recycling component to BlueScope steel operations in NZ.

      • Andrew 1.2.1

        The writings on the wall for NZ Steel. The mill was built to use Huntly sourced coal, and with the mines all shuttered and no new projects, NZS is importing the bulk of its coal from Indonesia.

        Easier just to import semi finished steel products and finish them in NZ rather than producing steel from Ironsand and Coal.

        [You have already used at least three different user names here and you don’t need to use a fourth one! We ask every commenter to pick one and stick with it. I have changed yours to the most recent (29 June 2020) user name that you seem to have used here – Incognito]

        • Incognito 1.2.1.1

          See my Moderation note @ 4:02 PM.

        • Molly 1.2.1.2

          Bluescope now includes Pacific Steel in Otahuhu, which draws from the grid and recycles material, and produces the rebar and coil used in construction.

          As you say, the use of coal at Glenbrook is an issue, but the whole point is that forward thinking strategies will retain that which is of use, and discard that which is not. Throwing the baby out with the bathwater should be avoided.

    • Draco T Bastard 1.3

      NZ's economy is far too small to support efficient large scale industrial plants like Tiwai point or Glenbrook.

      Well then, perhaps we shouldn't have made large ones.

      Go full automation and the factory is as efficient as any in the world – no matter the size. This is a point that may, including economists, don't seem to understand. Economies of scale only truly apply to person based manufacturing. Shift to full 3D printing and the final nail is place for the eradication for 19th century factories.

      A factory based around 3D printing can produce anything. No more dies needing to be designed and made to mass produce a single part as a single machine will be able to produce many parts and all it would need is a 3D design.

      The only alternative is to provide them export subsidies or try and artifically create a market for their output in NZ.

      We don't do that then. We just produce factories that can produce enough for us from our own resources. No need for trade at all and thus no need for export subsidies to boost an unsustainable system.

      • lprent 1.3.1

        We just produce factories that can produce enough for us from our own resources.

        That I’d agree with. The ‘tariff’ should either be the tyranny of distance or very limited startup protection / funding.

        There are protections in the world trading systems to inhibit or prevent dumping below cost. We should just get used to using them against local importers.

        The thing that I don’t like from the 1970s and early 1980s is the tariff system that eternally got renewed to protect local businesses, local jobs, and in the SMPs – whole export industry sectors. It didn’t provide any incentive for any business to improve their productivity and reduce their prices. It just incentivised larger companies, industry groups and unions to have ever larger lobby groups in Wellington to screw everyone else. That was cheaper than figuring out how to actually make efficiency gains.

        The crescendo of costs accumulating over decades of protected profits on consumers and voters is ultimately pushed the excessive zeal from voters in the 1980s to over-deregulate the economy.

        This isn’t exactly an uncommon pattern in history. Just as the unwarranted protectionism of someone like Trump is just a drearily predictable. Or the strategic state excessive support of export industries of the recent Chinese government is just as predictable.

  2. Sabine 2

    what will happen to the 10% that work in these industrys?

    well the same that happens to the ones that have worked in the tourism industry – be that the flight centre, the front of house hotel workers, the cooks, the tour guides, the bus drivers, the helicopter pilots, etc etc etc \

    they can get somewhere between 165 $ to 250% per week unemployment benefit – and if that is not enough they can go and 'exhaust' other means of making money such as 'ask your family members and friends', 'use up your oerdraft', 'use the credit card', 'sell goods of value' and so on and so forth.

    No matter what, that is what they can do. It is the only thing they can do. Unless some workers are more equal then other workers and other work is created. And currently ‘other work’ being created is gonna be a big issue.

  3. Stuart Munro 3

    The twentieth century was really the era for mass industrial plants – in the NZ context we should be aiming for something more light-footed and less monolithic. This goes against the established trend of building monopolistic players like Fonterra, the agglomeration of fishing under three or four larger companies, or the various producer board descended marketing authorities.

    New and emerging industries benefit from a diversity of approach, ideally informed by but not solely reliant upon contemporary research. Large numbers of family farms that upskilled their succeeding generations. This is what created our agricultural sector, not the settled, intensifying, overcapitalised, labour exploiting and deskilling model that has arisen over the last couple of decades.

    Developmentalist spending can usually work in the context of excess underemployment or unemployment and underdeveloped potentials. But quality of spending is an issue.

    For example, with tourism necessarily depressed by the border issues, which are looking more likely to persist than not, spending on tourism advertising is wantonly ineffectual. NZ is already enjoying an image boost over the handling of Covid, but cannot and probably should not contemplate lifting visitor numbers at present. Not while a lack of facilities is necessitating limiting returnees. Marketers are of course very good at persuading possible employers that their services are valuable, but they need to be directed toward more constructive ends.

    The transition to a hotter and drier climate ought to present considerable opportunities in underdeveloped areas like Northland, where hydroponics, which properly established requires 5% of the water of comparable soil-based production, represents a desirable diversification, and mean temperatures probably favour aquaponics built around Macrobrachium rosenbergii, or the easier (because it has no brackish water phase) but slower growing Paranephrops planifrons.

    • Sacha 3.1

      in the NZ context we should be aiming for something more light-footed and less monolithic

      Yes, and public investment where it offers most leverage – especially in shared infrastructure that supports many organisations. NZ’s ongoing billions in primary sector research is an example.

      • Stuart Munro 3.1.1

        Rewi Alley's small cooperative business incubator scheme, Gung Ho, which proved the model a generation before Yunus's Grameen Bank, set a size limit on new enterprises of around eight people. There was a clear intention not to create an unskilled exploited tier.

        • Robert Guyton 3.1.1.1

          That's good.

        • Dennis Frank 3.1.1.2

          Still haven't got around to reading my copy of his autobiography, so I didn't know that. http://nzchinasociety.org.nz/gung-ho-cooperatives/

          In 1938, Rewi Alley, Peg and Edgar Snow, and some other friends in Shanghai together set up an International Committee for the Promotion of Chinese Industrial Cooperatives. At that time, the Japanese invaders had already captured most of China’s industrial cities and looked to occupy all of China in the near future.

          Rewi’s plan was to establish small producer cooperatives throughout China that could contribute substantially to the war effort at the same time as they advanced the ideals of cooperation that Rewi and many others espoused as the hope for China’s economic future.This became a nation-wide civil movement with the biggest influence in China Gung Ho movement history.

          Looks like he contributed to the shift of the term into the English language: “These collectives became known by the slogan that Alley came up with: ‘Gung Ho/Work Together’.” https://blog.tepapa.govt.nz/2017/04/21/the-expat-origins-of-gung-ho-rewi-alley-a-new-zealander-in-china/

          • Stuart Munro 3.1.1.2.1

            Alley is responsible in large part for NZ's positive relationship with China, and was a good economic developer and teacher, if an indifferent dairy farmer. A friend of a friend taught at his school in Shandan.

            He may also have influenced the Korean Saemaeul-ho Undong (New Community Movement) which underlay the successful part of Park’s reforms, and was subsequently partially exported to Indonesia.

  4. Simon Louisson 4

    Economist, ex Roundtable member and former Comalco general manager Kerry McDonald argues in an article on Businessdesk that the Tiwai Point smelter has never had a subsidised power supply and its closure is unlikely to benefit consumers.

    https://businessdesk.co.nz/article/kerry-mcdonald-tiwai-there-has-never-been-an-electricity-subsidy

    Independent studies show that the Tiwai Point Aluminium smelter is one of New Zealand’s most successful developments. The first study in 1971 estimated a 10 percent real annual return to NZ in terms of net national economic benefit over the smelter’s life.

    [deleted]

    [please don’t do whole cut and pastes, esp of copyright material, thanks – weka]

    • Sacha 4.1

      Simon, while that was entertaining to read am I right in assuming you have pasted the entire column from behind a paywall?

    • Peter chch 4.2

      Excellent analysis posted Simon, thank you.

      It is easy to paint Rio Tinto as a nasty capitalist trying to screw NZ (which may well be true) but successive NZ governments know that with the sunk costs of the smelter, we can do our own version of screwing Rio Tinto and its other incarnations.

      1,000 unemployed, and the likely death of Invercargill, closure will impose huge costs on our economy, particularly at this time. This matter really needs a careful and dispassionate relook by our government.

    • Dennis Frank 4.3

      the government espouses the myth of subsidised electricity

      Would that be due to Treasury recycling the myth to govt in the current term??

      Would that be due to Treasury not doing due diligence on the economics of the smelter?

      If not them, which govt dept knows the truth of the situation – or do none?

      Simon, you write as if you know the inside story. I was always under the impression that only subsidies have kept the thing going, due to media reportage that has remained consistent through multiple changes of govt. If media, National & Labour are all as far from the truth as the public, who ought we to blame?? Perhaps it's just that private property rights prevent other stakeholders being informed…

      • Sacha 4.3.1

        Simon, you write as if you know the inside story.

        Supports the idea that the writer is actually Kerry McDonald instead, eh. Along with the ideological angle.

      • Draco T Bastard 4.3.2

        If not them, which govt dept knows the truth of the situation – or do none?

        Well, they did get it wrong about the Post Office which resulted in the sell off of Telecom. Telecom was making a profit for years before it was split apart from the Post Office but that wasn't reported by either Treasury or the MSM. Only the loss that Postbank and the Post Office was making was.

        As for subsidies – yeah, Tiwai point got it big. Having a lower price than anyone else for electricity pricing is a subsidy from those with higher pricing to the aluminium smelter. After all, that means that the profit of the electricity businesses must come from the other users.

        It's a subsidy, and a big one, its just not labelled as one. There will be others as well but none so obvious as that.

    • Ad 4.4

      All technically interesting historically.

      But none of that addresses the question of the post: how should the country respond in policy to the demolition of most of our heavy manufacturing industry inside a year.

      • Dennis Frank 4.4.1

        Policies that adapt the country to changing economic circumstance are required. So the answer to your question is `the country ought to produce such policies'. It would help if the two major parties were to adopt a bipartisan approach & inform the public that they agree such policies are required.

        Then they could end their joint press release with the declaration that business as usual is dead in the water so we have to do a Monty Python: And Now For Something Completely Different! That could wake a few people up…

        • Ad 4.4.1.1

          Or start with the policy that I put up and has been in operation for 3 years.

          Do you have some relevant bipartisan policy in mind?

          • Dennis Frank 4.4.1.1.1

            Yeah I agree that the path to the future starts from where we are. No I have no policy suggestions other than the overall framing – because it is the latter which shapes mass psychology and is therefore crucial.

            Ardern's claim of providing a transformational govt served effectively on that basis – but insufficiently so & we now need that to be ramped up and based on the pandemic. That's because the pandemic is busy forming our future economic prospects.

            As has been often suggested here earlier this year (by others as well as me), the policy mix must design for resilience and sustainability. Explicit acknowledgement that Labour has embraced such Green thinking would be nothing more than honest. Perhaps, if the PM did it, one could also call it gracious. Inasmuch as new industry is only going to be viable on that basis, such framing is accurate and likely to find bipartisan support…

        • Sacha 4.4.1.2

          It would help if the two major parties were to adopt a bipartisan approach

          Long way from a grand coalition except on symbolic rats and mice like 'user pays' for quarantine. Nats still promising more tarmac and calling it ‘vision’.

  5. Andrea 5

    Save us from what, exactly?

    Before touting the remedies what is the fell disease?

    • Peter chch 5.1

      High unemployment. Lack of economic growth. Reduced tax take. Increasing social problems. Diminished standard of living. Reduced opportunities for the current and next generation. Declining health service as a result of all the above.

      Do I need to continue or is it self evident?

    • Sacha 5.2

      Save us from what, exactly?

      Worldwide economic change.

      • greywarshark 5.2.1

        What is a fell disease, one may ask. It is a deadly one. And it may have attacked us already Andrea. We want to be proactive and strike at it before it is irreversible. If you haven't noticed anything bad happening to people either around you or in the same area, or sad stories from overseas then all the best for further ignorance. It might be better to further ignore any disturbing messages.

        • Sacha 5.2.1.1

          It is fair to question whether a few heavy manufacturing plants are representative of what needs to be attended to in our current economic context. Not as if Covid is the whole answer to their decline either.

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