The recent well-publicised problems of our  regional economic development agency (EDA), Venture Hawke’s Bay and their budget woes suggests that once again we need to re-assess what is the role of local authorities in economic development. This question is even more poignant when we recall that our EDA over the last 10 or so years has had a variety of names, structures and at least eight general managers … and (arguably) remarkably few ‘runs on the board’.

Underneath or beside the EDA, are the district or city councils who have been involved in local economic development more within their boundary than wider regional interest. Napier City has a long serving manager where there has been some consistency in approach. In the case of the other authorities it either has had a hands-off approach or a more modest effect.

But local government, whether overtly or not, has a role in facilitating or hindering local economic development and this can take a number of shapes.

What is ‘Economic Development’?

Before we consider the roles and contribution of Local Government in local economic growth it is important to present a clear definition of what we are talking about. In other words, what is the process of economic development and for what intended outcome?

Broadly defined, ‘economic development’ is a process by which all resources in a given area

are brought together in more creative and efficient ways to support an area’s capacity to increase its level of income and capital (wealth) and to distribute that wealth (through local expenditure and employment) to the community.

As one text on the subject puts it, “The ultimate goal of economic development policy can be thought of as sharing wealth through the creation and rewarding of jobs.” The implication in this is that municipal or regional population also grows, and this along with employment growth ‘justifies’ the economic development investment.

Over the last twenty years, local governments throughout New Zealand have become increasingly active in promoting and facilitating economic development. At the same time, central government has also tried to foster ‘regional’ economic development, through grants programmes and increasingly recognizing Regional Tourist Organisations (RTOs) and Regional Economic Development Agencies. Most regions have these as two separate groups. In Hawke’s Bay these have traditionally been combined, albeit sometimes with tension between the two activities.

Council – the Passive Facilitator

Irrespective of whether Local Government actively touts for business, a council is an economic player in its local (and regional) economy in a number of ways and sets the scene for development (or not):

• it spends money on development infrastructure that facilitates business and community activity and sustains environmental quality (e.g., roads, drains, parks, and gardens);

• it provides important community services that support economic activity and promote the health and well-being of the local population. These assist in social cohesion and the development of local identity (e.g., recreation services);

• it is an effective partner in the early stages of project development through its role in development approvals (e.g., planning, building and health); and

• it is often the point of contact for local businesses and the community in relation to day-to-day concerns that affect the immediate environment for business production and quality of life (e.g., local land use conflicts and their resolution, lobbying other spheres of government for attention to problems outside the Council’s responsibility, providing information on changes to regulations, development controls, etc.).

These are fundamental obligations of Councils, but not all recognize that they directly influence the way in which the local economy develops. We should not understate the importance of these core roles. If you like, it is making the area ‘capacity ready’ for a conducive business environment. The work in HB with regional transport linkages over the last thirty years is an instructive case in point.

On the other hand, confusing inter-boundary district plan issues, petty bureaucracies, and delays or inconsistencies in (say) the regional water plan are examples where we are not ‘business ready’. The fact that the current government had to streamline RMA in part to indicate to local government that it was hampering economic development suggests that all is not well yet in this role. It was not that long ago that builders and developers were going to picket Hastings District Council for their consent delays and petty issues.

Nothing less than best practice in each of the areas of responsibility should be the goal of Local Government. However not all Councils do this consistently or well. Local Councillors and officers must realize that the attitudes they adopt and the decisions that they make resonate in the local community. Apart from the important task of Councils getting their own house in order, so to speak, a more pro-active role can (and should?) be adopted to stimulate and encourage local/regional economic development.

Council- the Active Facilitator

This is when it gets tricky. There are as many models of local government facilitation for economic development as there are local governments. In my experience they change frequently and have decidedly mixed results. Most local governments rate the importance of their role as facilitator of economic development highly.
Why? Simply because councils are political bodies and for the most part often with poorly defined responsibilities. The big issue arises where local government goes beyond  (or actually fails to clearly undertake) the infrastructure works and land use planning for what I call ‘core’ programmes, and set out to be promotional vehicles, business assistance programmes or even commercial ‘entrepreneurs’ and actively enter the market.

Frankly, if local government just did the basics well, then they would both be within their role … and doing a great service.

Some local governments nonetheless claim great relevance in economic development as, locally, people do turn to them, especially when things get tough. Unfortunately, a few Councils even believe they are the lead agency for regional economic  development. When this claim is made, I try to look for evidence of real effect of these interventions, and generally find them wanting. Even central government nowadays is wary of betting against the market.

If there is a role here beyond the core infrastructure of ‘liveability’ and access, the process necessarily must be through partnerships or coalitions.

Indeed to me, the key quality or skill of local government’s economic role is the ability to build coalitions with the private sector and other government agencies … and use this process to leverage joint outcomes. Sadly, words like ‘partnership’ are glibly used; it’s much harder to find genuine stakeholder benefits.

In this context, one of the best roles local government can play is simply as honest broker to focus overlapping activities and a lack of mutual direction which is common in economic development activity. And in this, local government need not be the ‘lead’, rather should cause it to happen.

A cameo role here for local government is coordinating local funding submissions to central government to gain the (increasing) limited funding  available. Venture HB, despite apparent systemic problems in other areas, has achieved this in recent times.

What about Ratepayer Money?
Councils have powers to compulsorily extract money for various activities. The market often fails in terms of joint funding initiatives for particularly diverse sectors, such as tourism. Here local government rating powers can be cautiously used for the ‘public good’.

Where the funding is targeted, such as CBD marketing rates or the new regional business rate,  then there is a strong argument for these sectors to manage and use these funds within some publicly approved business plan. The theory is that these funds are extracted to get some economies of scale in terms of the benefit.

Local government sometimes use rate holidays or cheap land as inducements to business to establish or expand. These are forms of ratepayer subsidy (or loss of rates).  In my experience, these approaches are high risk distorters and the New Zealand government history has shown poor quality subsidised outcomes.

Skin in the Game
What I always find disappointing at both elected and officer level is the economic insularity of local government in Hawke’s Bay. This inhibits economic progress. It is critical that Councils understand the nature and working of the local economy so they can respond to change and need. Sadly the openness of the elected and appointed officials here has been uneven or episodic – and even more telling – lacking in strategic focus.

In-house, local government need to get their own core business infrastructure functions right to have proper land strategies and streamlined regulatory systems. To me this is the core responsibility of councils. It is a huge role in its own right, but not done consistently or within some overall economic plan.

Outside of this, the role should be more an active partnership model using the strengths of the private sector in the region. After all, the private sector is the principal driver of economic growth.

If initiatives are to have any chance of survival and beneficial effect, economic development must be business-led by people with ‘skin in the game’. The skills of local government to do this are about managing people on issues where they believe they can have an influence. After all, Hawke’s Bay needs to grow from within and attract people who choose to live here, or we will end up only with people who have no choice.