A Word from Bill Kaye-Blake, New Zealand Institute of Economic Research principal economist based in Bannockburn


Policy choices have consequences

We are building a house, and we struggled to get Pink Batts.

Level 4 in Auckland shut down production for a bit.

Supplies ran out in parts of the country.

The shortage reveals the problem with concentrating too much production and logistics in one place.

If it shuts down, there is no back-up.

Every few years, Auckland seems to get hit with something: power failure, gas pipe problem, now a pandemic.

It makes us all vulnerable.

Of course, concentrating everything in Auckland was a deliberate choice.

The Government before last had a policy of building up Auckland as an international city.

In practice, that meant moving as much economic activity there as possible.

There are good arguments for the policy.

Economists talk about the benefits of agglomeration. When more people and business are in the same city, they are more successful.

Businesses have an easier time finding just the right employees, and people are more likely to find a job they like.

Bigger cities mean more choice for clothes and food, but also jobs, technologies and investors.

Cities are also better at circulating new ideas.

Ironically, economists talk about innovations like they are diseases: being transmitted through populations and infecting people.

That was before we saw a real pandemic.

But there’s a price for these benefits.

Concentration is also a potential bottleneck.

There is more risk and less resilience.

Distributing economic activity around the country is a more resilient strategy.

Stronger regions and secondary cities mean that we have back-up plans.

If one place struggles with a disease outbreak, an earthquake, or power outage, other places can step in. It creates redundancy, which creates resilience.

That helps the whole country.

What we’ve seen with the split Level 4/Level 2 situation is that the country lost a bet.

We thought we could get the benefits of cities without the costs.

It turns out we couldn’t.

The key question for government is: is it worth the price?

Is the gain in economic activity and choice and innovation worth the risk?

I never thought it was.

Big cities have a lot to offer, don’t get me wrong.

It just felt like too many eggs in a single basket.

Economic losses from Level 4 are in part the price for the policy of focusing on Auckland.

I’m hoping these losses lead people to rethink the policy.