Down on the Bayou: is Wellington becoming a “backwater”?

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They call capital cities “recession-proof”.  Local, state and federal bureaucracies are meant to insulate capital cities against the economic cycle. The explosive growth of the bureaucratic state in the 20th century has meant that many capital cities are the primate or global cities in their respective countries. The same can’t be said of Wellington. Public service cuts and caps, PPPs and the devolution of government services* has put the freeze on the Wellington economy.

In his report on the future of local government in the region, Sir Geoffrey Palmer warned that Wellington risks becoming a “backwater” as the “centre of economic gravity moves to a resurgent Auckland” and a capital-injected Christchurch.

After all, GDP growth in the year to 2011 measured 0.8% – half the national average – and an Infometric report found that Wellington has the second least diversified economy. The number of listed companies headquartered in the region continues to fall. Infratil, Xero, Chorus, Todd Energy and handful of smaller companies remain.** The office vacancy rate stands at 15% – the highest in nearly two decades. The Public Service Association has found that more than 3000 jobs have been cut from the public service. In 2011 the government proudly claimed that they achieved a “six per cent reduction in administration staff over three years” and that they will reduce the public service cap to 36,475. Wellington isn’t a good place to be.

But is it really that bad? In 1991, 1996, 2001 and 2006 median household income was higher than anywhere else in the country. Data from Seek shows that the average salary package in Wellington is “$74,392 – $5,252 higher than the national average and over $3,000 higher than the Auckland average”. Weta Digital, Weta Workshop, Park Road Post and Stone Street studios*** remain internationally competitive. Add to that an often overlooked fact; Wellington is the transit point between the North and South Islands.

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Well, as nice as that sounds, consider this: the Gini coefficient for Wellington stands at 0.31. That’s higher than the figure for New Zealand as a whole and higher than Australia and much of Europe.  According to a report from Market Economics:

 

“The distance between the richer percentile and the poorer percentile was more accentuated for the Wellington region than others. The degree of income inequality in the Wellington region has increased over the study period from 3.59 to 4.06, with a larger proportion of total household income going to the top household percentiles”.

 

Kelburn old money and Roseneath opulence versus working class Newtown and squalor in Mt Cook (essentially). It’s an indictment, I think, on the structure of the Wellington economy. Brennan McDonald puts it well:

 

 [You] will do just fine over the coming decades. But only if you are a high skill worker, or connected to the public sector in some way, shape or form.

 For the masses of people not fortunate enough to benefit from this, Wellington will become a very tough place to live and raise a family. The baby boomer elite have pulled the ladder up after themselves.

 

The National government readily admits that public sector cuts have targeted low level jobs. The danger in that is that the gap between the MFAT diplomats and the rest of us will increase.

Wellington has the second least diversified economy. It is built around the public sector and the industries that support it.  85% of Wellington jobs are found in the tertiary sector, 13% in the secondary sector and 2% in the primary sector. If, say, you lose your job on the lower rungs of the tertiary sector, it is very difficult to transition to a new job in Wellington. It’s very difficult to make a lateral transition (i.e. to a similar job in another public sector organisation) as low level jobs are going across the public sector. There’s little labour market flexibility. The Wellington economy is adding more high skill jobs while outsourcing or terminating low level jobs.

Adding more high skilled jobs is a great thing, but the infrastructure is not in place to ensure low level workers can transition. Steven Joyce is erecting barriers to study and Paula Bennett is making it harder to claim and keep a benefit. It’s becoming more and more difficult to upskill. The result: increased inequality and its consequential effects on health, crime and social cohesion. Maybe Wellington might become a “backwater”, but not for the reasosns Sir Geoffrey Palmer thinks.

It’s unlikely that the government will move on this. All right, it’s certain that the government won’t move on this. Why would they? Income inequality isn’t on the list of priorities and Wellington is a left wing town. 54% of voters in Wellington Central went left (compared with 38% who went National). 58% of voters in Rongotai went left (compared with 33% for National). It’s convenient, isn’t it, to let Wellington wither?

 

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*I’m looking at you, Whanau Ora.

**It’s worth mentioning the Datacom Group, Weta Digital and Weta Workshop, Park Road Post and a number of SOEs (NZ Post, KiwBank, KiwiRail, Meridian Energy and others).

***i.e. the Peter Jackson empire.

2 COMMENTS

  1. Mmm. There are lots of free or cheap activities for families here in Wellington, but the main issue is the outrageous cost of housing especially for families.

    “The Wellington economy is adding more high skill jobs while outsourcing or terminating low level jobs.”
    Reality worldwide, not just Wgtn.

  2. For Key & Co, Wellington seems little more to them than some kind of Canberra with wharves. Wellington is capable of much better than that. Throw in a cartelised insurance sector ramping up premiums after the ChCh earthquakes as well.

    Seattle was once written off as a backwater after Boeing, its single biggest employer, hit hard times in the 1970s. It got so bad that billboards went up saying, “Will the last person leaving Seattle please turn out the lights?” Things seemed hopeless… and then a man named Bill Gates relocated to Seattle in 1979. The rest, as they say, is history. It also helped that Seattle had a major seaport and airport.

    The likes of Xero and Trademe aren’t yet Google or Amazon, and Seattle hasn’t had to deal with rent-seeking insurers. Additionally, Wellington Airport’s runway is too short for flights beyond Australia.

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