Opinion: Why Wellington needs more Icebreakers and Wetas, not more bureaucrats

By Infometrics economist Andrew Whiteford Those of us that live in Wellington like to think of it as the creative and innovative hub of New Zealand with the highest qualified workforce and highest incomes. But it appears that Auckland can increasingly lay claim to that mantle. Wellingtonians have historically enjoyed the highest average weekly wages in New Zealand largely due to its concentration of high paying industries such as financial and business services and of course government. But the gap between average earnings in Wellington and its northern neighbour has been gradually closing and in early 2008 Auckland surpassed the capital for the first time. Wellington has in recent quarters regained its top spot as it has ridden out the recession better than Auckland. While the northern city is more heavily exposed to hard hit sectors such as manufacturing, construction and retail, Wellington has had the moderating effect of government. And this is the bottom line. For all the talk about innovation and creativity Wellington is still a city built around government. Government has been by far the largest contributor to employment growth in Wellington since the beginning of the decade. The public sector has accounted for almost 30% of new positions and if we include the positions in the private sector that depend indirectly on government spending (and I would include a sizeable component of my own job in that) then the figure is probably closer to half. If we delve down into the details of where employment growth in Wellington has come from and rank the 500 industry categories according to their contribution to employment growth in Wellington, the list is topped by Central Government Administration. The category ominously titled "˜Regulatory Services' ranks number eight. Almost a thousand of the 33,000 net jobs created in Wellington over the last nine years were for people who "˜enforce regulations, licensing and inspection activities'. This does not sound like the types of activity that one might describe as innovative and creative. Auckland on the other hand is showing the hallmarks of a city of knowledge and innovation. The sector that contributed by far the most number of new jobs over the past nine years was the knowledge intensive "˜Professional, Scientific and Technical Services' which includes information technology, corporate management services, engineers and architects. These professional services together with Education and Training accounted for about 40% of the 100,000 new jobs created. With its critical mass of businesses and proximity to the largest market in New Zealand, Auckland has a huge advantage over the capital for attracting new enterprises and luring head offices northwards. Auckland's critical mass also entices the majority of new migrants to New Zealand to make the northern city their first stop. Wellington largely misses out on this significant source of growth. Wellington is looking particularly vulnerable as Labour government largesse gives over to public sector belt tightening. The city's major source of growth over the past decade may even turn into a source of decline as government departments are downsized. Wellington will increasingly need to rely on its innovative niche sectors to drive growth. In the shadow of the expansive public sector are plenty of examples of highly innovative and creative industries in Wellington. The film industry is probably the best known. From humble beginnings to being world renowned Weta Digital and Weta Workshop are today probably among the largest non-government employers in Wellington. Wellington has also spawned Icebreaker which crafts top quality merino wool from the South Island into fashion items which are marketed around the world. It is an outstanding New Zealand business model. Icebreaker uses a natural resource which we have in abundance. They outsource the low value adding production process to Asia but keep the high value adding functions of design and marketing in Wellington. And they have built their brand image around our pristine and spectacular environment. One could say similar things about other successful companies based in the Wellington region, like the office furniture company, Formway. In a speech to Hong Kong's film industry earlier this year, Wellington's mayor spoke proudly of the success of Wellington's film industry. She spoke of how the Wellington City Council had cut red tape and sped up the consent process for the film industry. An environment had been created in which the film industry could take decisions quickly, be nimble and change direction at a moment's notice. This is the type of environment we need to grow more Weta's and Icebreakers. We live in hope that the next decade will not foster another 1,000 enforcers of regulations, licenses and inspection activities. ________________ * Infometrics is an economic information and forecasting company based in Wellington. To find out more, see its website here. This piece first appeared in the Dominion Post.