NZ can learn from Christchurch's post-quake mistakes

Thursday, 30 July 2020

Construction projects inject immediate cash into the economy but the benefits can be short-lived.

OPINION: Heading into an election, a savvy political strategist coined a phrase that rolls off the tongue of any seasoned campaign hack.

In the midst of a deep recession, ‘It’s the economy, stupid’ became the unofficial slogan for Bill Clinton’s 1992 election campaign. With a mix of folksy charm and a campaign focused on the economy and health, Clinton’s prevailed over one-term president George HW Bush.

Just weeks from New Zealand’s election, the teams behind Jacinda Arden and Judith Collins are using this same potent mix, aiming to convince voters they will put money in our pockets whilst also caring for our health and wellbeing. Never has fiscal prudence and economic pragmatism felt so relevant.

But it’s another axiom from the political playbook that has New Zealanders really thinking: “Never let a crisis go to waste”.

Joanna Norris , ChristchurchNZ chief executive, says structural change is needed to deliver long-term prosperity.

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In a Stuff/Massey poll this week, 60 per cent of the 75,000 participants said they want the next Government to use the opportunity presented by Covid to “reform the economy into something better”.

And this is the balance we need to strike – short-term recovery, long-term transformation.

Wage subsidies and Government-backed loans will be quickly replaced with fast-tracked capital projects, as the Government seeks to stimulate the economy with quick-fire construction activity, guaranteed to get large volumes of money circulating.

These “shovel-ready” projects will be dispersed across the country and will certainly inject much needed urgent stimulus – up to $300m in spending in Canterbury alone.

They will also help people who lose their jobs transition into new work, provide a welcome pipeline for vulnerable construction companies (along with businesses in their supply chains), and help the country address a deficit in infrastructure spending that has left many of our cities and towns with inadequate roads, pipes and buildings.

This will be valuable, important work and a welcome stimulus. But it is not a panacea to economic downturn in isolation.

Instead, a far bolder, braver and more visionary opportunity is in our hands. A chance for New Zealand to be what many around the globe already think we are: a country that leads with a commitment to a sustainable productive economy and just society.

And it is worth taking a quick scan of our own recent disasters to forage for a few lessons. The Canterbury earthquakes were significant physical shocks, with immediate brutal economic impacts. They were followed by a rapid (and, of course, necessary) construction response as the residential, commercial and civic infrastructure was rebuilt.

A glance at the GDP growth graphs for the region over the past decade are immediately illustrative: a sharp fall into negative growth immediately after the quake sequence, soon followed by a steep recovery as billions of dollars were pumped into the rebuild programme.

But within just two years this growth had plateaued, and growth within the regional economy has been steadily slowing since 2015 as projects were completed. Though construction still supports about 30,000 jobs in Canterbury, pre-Covid economic growth in the region was nearing zero and the urgent search was on to find new forms of activity to replace the construction stimulus.

Put crudely, construction spending was above normal demand and had been hiding the reality that major structural change within the economy was required to deliver ongoing long-term prosperity. We were confronting the reality that our traditionally strong industries were disrupted, and we were facing talent shortages.

Locally we were working to build industry clusters around health tech, future transport, and food, fibre and agritech that brought together education, research, businesses, iwi and community. But we were not moving fast enough, nor investing enough.

New Zealand can learn from this.

Our country’s post-Covid investment cannot be one-dimensional, and can look beyond the easy and tangible, albeit expensive, stimulus provided by construction. It should also do more than fast-track projects that would have happened anyway.

Pundits and politicians are already punting around ideas for future growth opportunities from investment in localised renewable energy and electric transport to enabling digital technologies.

The country has started an essential conversation about the future of visitation with a focus on value over volume, and many New Zealanders have a renewed understanding of the importance of sustainable agriculture and food production as a national strength. Our strong wool industry, once a national jewel, is searching for answers to reinvention. Businesses meanwhile are urging simplified regulatory regimes and streamlined government structures.

A significant investment in innovation, education, sustainability and R&D is a thread common to these ideas.

Our universities and the newly formed NZ Institute of Skills and Technology can be deeply entwined with regional industries, quickly developing nationally complementary Centres of Excellence and education programmes to support the transition of the newly unemployed into the industries of the future. This should be supported by investment into Crown Research Institutes, New Zealand Trade and Enterprise and Callaghan Innovation.

Investment in this innovation infrastructure will help us emerge, not only hard and fast thanks to short-term spending on hard infrastructure, but also cement long-term sustainable growth.

We already enjoy shared national values and a global reputation, it’s time to turn these into innovative action to deliver economic transformation and New Zealand’s long-term wellbeing. After all, it’s the economy stupid.

Joanna Norris is chief executive of ChristchurchNZ, the economic development agency for Ōtautahi Christchurch.