Speech: Creating a Healthy Heartland
David Shearer | Wednesday, August 8, 2012 - 10:03
Speech to Pipfruit NZ - Nelson
I’ve spent a lot of time over the last six months travelling around New Zealand’s regions and talking to people.
From my first day in the job I’ve said that Labour needs to listen really closely to what New Zealanders are saying.
Listening is nowhere more important for us than in the regions of New Zealand where, after nine years in government, a lot of people told us they thought we had stopped listening.
Every time I meet someone I pick up a new idea, or a new insight into how things are going.
One thing that has come through for me strongly is that New Zealand’s economic strength is in our heartland.
If you take out the oil going into Whangarei to be refined then every port outside Auckland and Wellington is exporting more than it imports.
In some cases, like in Nelson here, exports are worth as much as three times as much as imports.
Auckland brings in 60% of our imports through its seaport and airport, and exports less than a third of our total.
The real export strength of New Zealand is going out through Tauranga and New Plymouth, and through Napier and Dunedin - because the ports are where the wealth is being created.
Therefore your industry, along with other regionally-based industries, are crucial to New Zealand.
We need the heartland of New Zealand to succeed. If it doesn’t succeed, New Zealand won’t succeed.
But I’ve been listening closely, and there are clouds gathering over the future.
The heartland is being neglected.
Services are being ripped out, too many people are not seeing opportunity, too few can see jobs and good incomes ahead and they’re leaving.
That’s storing up problems that we need to fix.
When I say that, I expect you to be sceptical because you can say - ‘look at our industry’: Horticulture exports, including pipfruit, were just $116 million in 1986. Today it’s a multi-billion dollar sector.
That growth has helped to fuel the New Zealand economy, but the truth is we need to do better still.
New Zealand’s income per head has been falling behind other countries for decades.
We often talk about the wage gap with Australia, but we’ve actually had a wage gap opening up with most developed countries.
That’s why 53,000 New Zealanders went to live in Australia in the last twelve months.
They’ve been leaving from every part of New Zealand.
2,293 people from Northland.
4810 people from the Waikato.
4,024 people left the Bay of Plenty.
I could keep going - through every region.
This matters to me.
I don’t want New Zealanders to have to get on a plane to see their grandkids.
We shouldn’t give up.
A few weeks ago a senior economist with the NZ Institute of Economic Research said the country's shrinking population under the age of 40 is very troubling because it has the biggest impact on rural areas.
Therefore this is a critical issue for us all - and for your business, because the towns and regions that people are leaving are the places where your businesses are located and where the economic strength of New Zealand lives.
I’m not saying that things have all just started to go pear-shaped in the last couple of years.
But what’s been happening in the last couple of years has been that the National Government has begun to take the heartland for granted.
The Government stopped lifting a finger to help, and in many cases created new problems.
There’s been a torrent of job losses in export industries, in manufacturing, in the productive economy - all in good industries, like the 27 jobs lost at Pacific Aerospace in Hamilton or 25 at a bottling plant at Paeroa, where the companies involved are taking heat from the high dollar.
It’s tough on a town when 300 people lose their jobs at a meat works in Waipukurau, or 41 at a wood products plant in Napier.
When 50 people lose their jobs at a plant in Oamaru, or 22 at a sawmill in Winton, or 90 at an earthmoving business and 100 at an education provider in New Plymouth…each of those jobs is a source of income for a family, and the loss of that family’s income ripples across the whole town.
We don’t always hear much about it.
The story of the heartland is not being told.
That’s why there’s little understanding of what’s going on, and the way the government isn’t helping.
Government agencies have been moving to consolidate services at Head Office in Wellington.
For example, there are 67 fewer jobs at the Work and Income contact centre in Northland today than there were in 2008.
In the Waikato, unemployment has increased from 4.4 per cent of the workforce at the end of 2008 to 8.6 per cent this year, and that includes 54 jobs lost at IRD in Te Rapa and ten jobs at DoC.
When times are tough, everyone has to tighten their belt, including the public service.
But that doesn’t mean everything has to be centralised.
I support an efficient government sector. It helps taxpayer dollars go further.
But what I am saying we need to do differently is look at efficiency in terms of where we can concentrate services to have the biggest impact.
What we need to do is change our way of thinking, from stale arguments about the proper size of the public service, to understanding that - whatever the proper size of it - it ought not to be centralised in Wellington or a few main centres.
We need to start seeing regional areas of New Zealand as a strength with potential to be unleashed, not as a cost centre.
Have a look at what’s been happening to our regional polytechs.
They’re crucial to providing the skills and education that businesses in the region need.
But since 2010 they’ve had their budgets slashed by 11 per cent - far more than metropolitan polytechs.
That amounts to $32 million less going towards increasing the skills and knowledge of young New Zealanders in regional communities.
Taking that amount of money out of regional economies is going to have an effect itself, but even more importantly it rips into the education and skills training that help the heartland earn a future income.
Another example is the priority that Government gives to roads.
Over the next ten years it’s planning to spend over $12 billion on building new motorways.
The money for those new motorways comes from the same budget as all other new roads and upgrades are paid for. There isn’t some magical new pot of gold at the bottom of the garden that pays for motorways.
Almost no regional roads will be built or upgraded in the next ten years because the money is going into new motorways like the one from Puhoi to Wellsford.
It’s a nice to have, but when you spend on new regional roads, you get back more economic benefit than the cost of building them.
I can’t express it better than the mayor of Ashburton, Angus McKay, who said: "We are frustrated that the Government appears to have chosen to focus their expenditure on city motorways at the expense of the rural areas that generate a significant proportion of income for the country."
What we have to start doing is creating partnerships between central government and the heartland.
In four years in government, National has never appointed a minister of regional development and doesn’t give regions the priority they deserve.
My message to you today is that this will change.
Labour will stand by the heartland and get involved as a partner.
The starting point of a partnership is the commitment to work together for a healthy heartland.
There isn’t going to be a shopping list of new activity imposed by the centre. That’s not how partnerships work.
Instead, what is needed is a commitment to a process of working together.
Let me give you an example of what I mean.
In Opotiki, there is a big 3800 hectare marine farm 6 kilometres off the coast. It’s partly owned by local iwi and Sealords, and they’ve got a joint venture with a Chinese company to market their products in China.
This could be worth 450 new jobs.
It’s potentially the game-changer the township needs.
Opotiki has had a tough time.
Unemployment is high. The town has gone from having a bustling, busy economy in the 1960s to the highest level of deprivation in the country.
Nearly a thousand working age people in the town are on benefits.
The government spends about $25 million a year in direct income support.
The Opotiki District Council is working on a major plan to redevelop the harbour so that the marine farm project can go ahead. It may end up needing support from central Government down the track.
It would mean more boats could use the entrance, with spin offs for the marine industry and tourism.
If you moved people off benefits and into jobs you can see how the investment over time would pay itself back.
This is what I mean by new thinking in developing our regions and getting stuck in to help.
The point is that it’s not just about helping Opotiki grow.
New Zealand as a whole will do better when our regions do better.
But we have to pull together and take more of a partnership approach, and take an open mind and be creative about how the government can help.
In the 2000s the Labour government set up the tools for a healthy heartland.
It set up NZTE, which here in Nelson shares an office with the Nelson Regional Economic Development Agency and kick started the Wine Research Centre, and the Omaka Aviation Heritage Centre.
There are similar stories of building on regional strength in most parts of the country.
The results of that were clear - every region of New Zealand was growing through most of that decade.
And in Nelson here, where the region made the most of the development opportunities, growth has been the most resilient. Unemployment is lower, fewer people are leaving for Australia.
Nelson is a shining example of the difference that a pro-active development strategy makes to a healthy heartland.
We need to return to the regions, and Labour is going to be creative in going further still.
The Opotiki marine farm development highlights that there is an issue with the provision of capital to regional New Zealand.
Beyond the corporate and farming sectors, we have to do better at helping innovative businesses in our regions get access to capital for development.
That, by the way, is another reason why the heartland will grow faster as a result of Labour’s vision for growing our savings and reforming the tax system so that investment goes to the parts of the economy that can grow fastest, not the parts with the best tax breaks.
Over the last couple of decades, the profile of our heartland economies has remained pretty much the same.
The biggest change has been an increase in the service economy, and a decline in manufacturing.
I want us to be creative about bringing manufacturing back. Not the manufacturing of old, of course, but hi-tech, high value manufacturing leveraging off our existing advantages.
This is a critical issue for your industry.
If you want to see what a difference manufacturing can make, and how it can be achieved, look at the success of our dairy industry.
It invested heavily in world class capital equipment, and in research and development, and that’s why it’s the world’s most efficient processor.
The positive effects create spillovers in other high-value sectors.
Dairy science and research is driving investment in technology behind so-called neutra-ceuticals - high value products derived from milk.
Dairying produced the animal management business Gallaghers, which in turn has gone on to become a global high-tech, high-value business.
That’s how capital investment in innovation spreads across the economy.
We need it to happen elsewhere, including in the horticulture sector to improve productivity and profitability.
For example, investment in robotics technology to improve picking efficiency will help to drive labour productivity in your industry.
Pipfruit has been a leader at innovating in new varieties. Jazz, Braeburn, Fuji.
The story of those varieties demonstrates the value of cooperation across the industry - that I want to see more of - and also the threats when it’s atomised or focused on the short-term.
Government can help in a lot of ways.
I gave you the example of the wrong-headed way we tax capital differently in different parts of the economy, rewarding investment in metropolitan speculation at the expense of productive investment.
Government can help promote spending on R&D.
One reason we’re slipping behind is that our private sector spending on R&D is far below the average of other developed countries.
I believe R&D tax credits help to attract private sector investment into innovation.
The previous Labour government set up the Fast Forward Fund to help produce innovation in the sector.
It’s now been turned into the Primary Growth Partnership, and we need to ask where the next steps will come from.
Government procurement can help too - not just directly into the horticulture industry.
But experience shows that when the government employs skilled fitters and turners and engineers in a place like Dunedin’s Hillside railway workshop, those tradespeople have skills that can be transferred to other industries. That helps to increase productivity.
Government can change our monetary policy to make our currency less volatile and more consistently competitive.
At the moment the IMF estimates our currency is about 15 per cent over-valued.
That’s not helping you sell to the world, and volatile returns are not helping you make the decision to invest in new plant.
As exporters you are working with a Reserve Bank Act designed for a past era, when inflation was the number one enemy.
Labour is still fully committed to a low inflation target and an independent Reserve Bank, but we also want to give it the power to take into account our rate of growth and deficit in our trade with the world.
A couple of weeks ago the the Riddet Institute produced a report called “A Call To Arms” for the agri-foods sector.
The Riddet is a research partnership between Auckland, Otago and Massey universities, along with the CRIs AgResearch and Plant & Food Research.
The report asks what we need to do to double our agri-food exports by 2025, which would require compound growth rates across the industry of about 7 per cent every year.
One of their points is that here is no shortage of ideas and strategy and documents, and most of them contain sound advice full of proposals for incremental change that will, taken together, add up to a big difference.
So they asked why those reports don’t seem to ever get implemented
One reason is the absence of leadership to make really big improvements in the sector’s capability.
I want to say that I endorse the approach set out in the Riddet report -it starts out by advocating better industry-wide leadership and partnership with the government to get things going.
It will take game-changing thinking.
We have to start seeing our future collaboratively, looking at what we do through the lens of “NZ Inc”, looking at new ideas to get where we want to be in ten or twenty years instead of fighting over the stale debates of the past.
In every sector, businesses are becoming more specialised, facing more demanding global pressures, needing to become more connected.
Think of the changes that have occurred in your own industry in the last decade or so:
We're facing intense competition from suppliers such as Chile, South Africa, Argentina, Brazil and Poland. China has risen to become a major apple producer supplying the northern hemisphere.
Brazil’s apple production has tripled in twenty years - since 1985 its annualised growth rate has been seventeen percent.
The old ways of doing things haven’t been keeping up with the world, and as it gets even more competitive the old ways will work even less well.
We need to harness the high end, high skill, clean and smart parts of the value chain.
So the principles of what we need to do are: partnership across industry to leverage our regional strengths and to grow our science and our skills.
Young workers starting out in New Zealand need to know they have a future here.
We have an urgent job before we can look them in the eye and promise that future will be guaranteed in every region of New Zealand.
When a massive earthquake smashed Christchurch, we all knew we had to get in there and make a national effort to put the pieces back together.
The heartland is not in a post-earthquake crisis, but New Zealand’s economy is in a long-term decline of crisis proportions.
The heartland is central to New Zealand’s fight-back. It’s been neglected and taken for granted by the National Government and I want that to change.
I want us to return to the heartland, and the Labour Party will do that.
We need to do things differently. Work in partnership with the heartland. Modernise our economy so that the heartland prospers again, through our skills, our innovation, our investment in higher productivity and high value exports.
That’s what I’m committing to doing.