Why regional economies are suffering

Regional economies have been going downhill for some years. Retired farmer and former Rangitikei councillor Jim Howard examines what's gone wrong.

The Government's big guns were in town two weeks ago announcing the findings of the much-vaunted Manawatu-Whanganui Regional Growth Strategy.

Minister of Economic Development Steven Joyce said: "You have a focus on this region which is a once-in-a-lifetime opportunity." Too true - this paper carried articles for years bemoaning the poor economic results from this.

When this strategy was announced last year, I hoped that, at long last, we would see a comprehensive and competent analysis of what has gone wrong with the regional economies. And what needed to be done to put them right.

I obtained a copy. No such recommendations. What a wasted opportunity.

I had the chance at the National Party regional conference in Palmerston North in May to put my concerns to Mr Joyce, who was leading a seminar on regional development. He dismissed my concerns curtly, saying he was not interested in what had gone wrong -- he just wanted to find some projects for investment.

If the problems which have caused the regional rundown are not identified and corrected, what is the point in investing more money? Is this not a classic case of "throwing good money after bad"?

Practically all the new investment opportunities identified are export-oriented, so they need an export-friendly economy to be successful. It is exactly the lack of such an economy over recent decades that has caused the decline of our export industries and, with them, the regions where the bulk of these are based.

There are calls whenever regional development is discussed that regional centres need to attract more and new industry. What seems to escape these advisers is that every region is home to a substantial share of the country's major industry. This is farming, the "sunset industry" of Rogernomics times.

Over the past few years I have obtained figures from Beef & Lamb NZ showing the "real" incomes - that is, adjusted for inflation - of sheep and beef farming in the past three decades. A line through the average peaks and troughs shows a steady decline.

It is no surprise that so many sheep and beef farmers responded by converting to dairy. Unfortunately for them, the pot of white gold at the end of the rainbow evaporated, and they are now suffering.

Last year, at a Rangitikei District Council workshop to look at the then recently announced Regional Growth Strategy, we were given various economic figures. One illustrated the "growth" in GDP for the Rangitikei district relative to the rest of New Zealand. It didn't take a rocket scientist to recognise the remarkable similarity between the two downhill lines.

Regional towns grew up in a symbiotic relationship with their surrounding countryside to service the needs of the surrounding population. So it continued for a century until the spending power of the countryside diminished and failed to support the businesses in the towns. As businesses failed, customers travelled further to meet their needs, and so the downhill spiral began.

Why? Since the afore-mentioned Rogernomics disaster, our economy has been bedevilled by either excessive inflation, or excessive interest rates to try to control that, and an excessively high exchange rate brought about by both. These have had a devastatingly adverse effect on export and manufacturing, which suffer from much the same pressures and are forced to compete with imports made very cheap by the high exchange rate.

Look at the long list of manufacturing firms which have gone out of business or "relocated" to Asia.

The focus of economic policy has been on controlling inflation, which had to happen, but not at the expense of all other facets of the economy.

Because of this preoccupation we now have the nonsense of the governor of the Reserve Bank trying to push inflation back up to the target range, because that is what his contract says he has to do.

What is needed is a much more balanced formula, which takes account of exports, national savings, consumption and productivity.

Whenever people talk of these macro-economic factors, most people put it in the too-hard basket, saying "we're just a small country in the midst of so many much greater players".

It is precisely because we are such a small country that we must do whatever we can to run our economy so it encourages export and competitive domestic industries.

�Jim Howard is a trustee of the Lincoln-Westoe Trust which runs a training farm in the Rangitikei.