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The fountains. Photo: supplied, Christchurch City Council
The fountains. Photo: supplied, Christchurch City Council

OPINIONBusinessApril 21, 2020

The case for putting local at the core of NZ’s economic recovery

The fountains. Photo: supplied, Christchurch City Council
The fountains. Photo: supplied, Christchurch City Council

As New Zealand prepares to move out of the strictest lockdown status, we need to ask a wider question: What kind of economy to we want to build? Iain White writes.

Like you, I want things to go back to the way they were. I crave normality. I miss my morning coffee from my local café, I miss my friends, and I miss my colleagues and students. Governments and businesses want the same thing, too. To take stock and get back up and running. It’s understandable to want to restore business-as-usual.

There is a lot of media discussion concerning the economic recovery. This tends towards three main areas: the timing of dropping alert levels and what this entails, the size of the economic hit we may take, or finances and the specific sectors that will need tailored support.

I want to help open up another discussion that is beginning to emerge, one which is more fundamental and provocative: what kind of an economy do we want to have, and how can our substantial investments to stimulate recovery help us transition? If we don’t talk about this now, when do we?

Normality seems compelling now, but it isn’t great for everyone. We have growing inequality, we are one of the most auto-dependent countries in the world, there is a reliance on property to generate capital, there are huge regional economic disparities, and there are significant issues of inter-generational equity.

The normality we remember from the recent past also doesn’t exist. The world has changed around us. We do not know what the post Covid-19 economy will look like, but we do know it will be different. We can expect to see a reduction in global trade, global demand, and global travel.

There are also major structural changes to labour markets. There will be more unemployed, but these may be concentrated in many of the hardest hit sectors like hospitality, retail, or tourism, who may not have the skill set to contribute to, or directly benefit from, some of the infrastructure works of the recovery. There are also age and gender dimensions. For example, many unemployed will be women, who are over represented in these sectors, but infrastructure jobs tend to be dominated by males. We will also be less able to rely on international migration to fill gaps, as we have done in the past.

Normality was also uncertain for many. If there is one thing we know about capitalism, it’s that it is prone to periodic crises. It is too imperfect in the way it uses resources, allocates costs, or considers risks. Given the interconnectedness of economic and natural systems, global crises are both unpredictable and unavoidable. The best you can do is prepare your economy for shocks. In a world of uncertainty, this is one of the few certainties.

But what kind of an economy could we transition to? One able to recover quickly, address problems of the pre-Covid-19 normal, and withstand the inevitable future shocks.

A good way to start is to consider what is of value to you. The experience of the lockdown is a great way to introduce this discussion. It has never been so apparent that the place we live is very important to us. Our local green spaces, shops, and dairies. The social connections between neighbours that improve our quality of life, the viability of local businesses that we fear are in danger, or the value of local supply chains that can cope with global disruption. At the same time as we see businesses who are invested in a place work hard to re-establish themselves, offshore investors or large multi-nationals rationalise or redirect investment elsewhere.

There is also the emergence of a form of guerrilla localism to protect that which we value. New initiatives have been rapidly launched like Mighty Local, a website that aims to support home grown businesses in the Waikato. Online doesn’t have to mean supporting global companies who contribute few corporate taxes to our communities. Big is not better.

An urge to redirect consumer spending to our local community is part of our desire to restore normality. People instinctively understand that by spending locally we support the local economy and save jobs, but could the same principle apply to how a city or country spends money?

An international example that helps bring these discussions to life has become known as “the Preston model”. Preston is a city in northern England that in response to the last financial crisis pursued a policy of economic localism. Research had shown that much of what was spent locally ended up leaking out of the economy, and the bigger the business the further it went. So they simply tried to ensure that every pound spend by kocal government was spent as close to home as possible.

What started as a procurement policy had a remarkable effect. Despite harsh global economic conditions and harsh local government budget cuts, local spending went up. Jobs were created. The approach has now expanded into even more innovative ideas, such as a programme to foster worker-owner cooperatives or different land ownership models to capture value for local citizens.

Each idea is designed to create an economy that retains more money locally and shares more of that wealth with the local community.

The idea that you can stimulate the national economy by stimulating our regional and local economies underpins some of the thinking related to shovel ready infrastructure. But one of the lessons of regeneration strategies, particularly those involving large infrastructure programmes, is that they frequently leak money out of the national economy to overseas multinationals.

We have seen how much we value the local. We also know that much infrastructure spending will not be of direct benefit to many who have lost jobs. But by linking the huge fiscal stimulus with ideas connected to economic localism we can stimulate sectors beyond infrastructure, share wealth more equitably, and provide longer term economic security for all of us.

The temptation in crises is to predict the future, such as via treasury projections, to see how bad it may get and then respond to that. I think we should try and create a different future. Let’s return to a better normal. 

Keep going!